Venture Capital is the “2020” of the Financial Services Sector for Women Entrepreneurs

JANUARY 4, 2021

 

Do you ever feel like you are pushing a boulder up a hill?

 

The fact that female-founded companies received 2.3% of VC dollars in 2020 compared to 2.8% in 2019 seems quite fitting for the dumpster fire that was 2020, however, it doesn't make this stat any less abhorrent. The capital markets are frothy AF and “rich getting richer” venture capital investment vehicles like SPACs received over $50B in investments in 2020 alone, during a global pandemic when Main Street America, the backbone of our economy, is getting decimated.   

 

For those who don’t know—there’s no shame in the game here—a SPAC is a “Special Purpose Acquisition Company” with no commercial operations i.e., a shell company, that is formed strictly to raise venture capital through an Initial Public Offering (IPO) for the purpose of acquiring an existing company to take them public. The reason I’m pissed about the rise of SPACS is that hundreds of billions of dollars are being poured into these shell companies, and all it’s doing is making the dudes richer. But, simply put, where my ladies at? 

 

The vicious, biased cycle of venture capital continues during a global pandemic, while there are female founders solving real problems in mental and physical health, biotech, fintech, edtech—who deserve and need funding. 

 

We deserve funding, not because of our gender, but because our companies perform better.

 

In a recent study by Boston Consulting Group, businesses founded by women deliver 2X higher revenue per dollar invested than those businesses founded by men. First Round Capital did a study on their 300 portfolio companies and found that companies with a female founder performed 63% better than their investments with all-male founding teams. Bravo, First Round Capital! 

 

Given these stats, why is it nearly impossible for female founders to raise venture capital to start and grow their innovations? 

 

In 2017, we started to see a rise in female partners at VC firms, a trend that continues to increase. Sounds like exciting news for female founders, right? Wrong. Why? This is because VC firms have an investment thesis that they "must" follow* in order to write checks, so if your business is not in biotech, pharma, enterprise SaaS, fintech, IoT, crypto, biotech, you ain’t getting funding. It does not matter how fast you are growing, nor how profitable you are, if you don’t have one of these buzzwords on your deck, you have no shot. *unless you are buds with the VC, you'll probably get funding anyway, so you're fine.

 

But that’s just one part of the funding gap problem. Let’s talk about how (un)conscious bias got a rebrand to (introducing 🥁🥁🥁) founder pedigree! This is the latest in exciting nomenclature to come out of Sand Hill Road. Here’s who you need to be in order to have “founder pedigree”:

 

1. A founder with a highly successful exit under your belt
2. A proven entity in Silicon Valley – either an early engineer or an early product person who developed a product at a unicorn company that the firm has already made crazy money off of (think: Google, Facebook, Apple, Slack, Netflix, Amazon)
3. Deeply connected to the VC firms because you’ve already made them rich off some other M&A, PE, or I-Banking deal, and now they are going to fund your new thing because they like you, they trust you, and you have a really great deck

 

Now, ladies, does this sound like any of you? It’s definitely not me. Did I work at Google? Yes. Was I an engineer or a product person? No. So, even though my startup is solving a massive problem, has a huge market opportunity, grew 5X in both revenue and membership, during a global pandemic, became an essential service, and is a fintech (buzzword!), IFundWomen could not raise our Series A in 2020.

 

Here’s an abridged version of the story: 

 

In the first half of 2020, IFundWomen hockey-sticked in both revenue and member growth. Neat, right? 

 

But the proverbial wheels were coming off the bus and we needed capital fast to hire more engineers, product people, and customer support folks. So, like any reasonable startup founder who had already raised an oversubscribed, successful Seed Round the year prior, I embarked on raising an A-Round. 

 

I did my due diligence before the raise and the data didn’t lie: venture capital dollars were on par with the year prior, so capital was definitely still being deployed. So I geared myself up and said, "Ok! I’m going to spend my summer raising a Series A, and I’m gonna git ‘er done."

Lots of investors were keen to take meetings, look at decks, and do Zoom calls. My calendar was packed for two months with investor pitches. 

 

The feedback I was given was pretty standard:

First, funds were investing in their already-struggling portfolio companies. This I understood, and I had heard that this was a trend to watch out for. OK, fair feedback.

The second piece of consistent feedback I received was that IFundWomen doesn’t have a “comp.” It’s like, duh, we’ve created a whole new market here people, so yeah, when you’re actually innovating there isn’t going to be a comp. Would they say that to Elon Musk?

The third piece of feedback I received was that my pitch sucked. I leaned too much on the numbers, and not enough on the storytelling. Sure, my pitch needed some work, I will admit, but do you think that a man would EVER receive that feedback? That a VC would look at a growth slide like this and say, “You know, Stewart, you really need to tell a better business story.”

This is IFundWomen's actual member growth chart.

 

Finally, the best (and by best, I mean worst) piece of feedback: My co-founders and I don’t have “founder pedigree.” I actually laughed out loud when I heard this one. This particular fund I had pitched for about seven weeks straight, getting to know the partners, understanding what they invested in, letting them get to know me, my co-founders, our vision, our team. The meetings were substantive. They did tons of due diligence on our financials, our data stack, and our tech stack, to which they said they were “extremely impressed.” I was convinced they were going to invest. 

So when they “sadly had to pass”, I said, “so, you’re telling me that you ‘love what we are doing, are very impressed by our growth and traction, are super-excited about the enterprise partners we have amassed through inbound interest, and that you are so excited that you finally get to invest in a female-founded company’, and you are passing because of founder pedigree?” 

“Yes,” they said, “because the ‘partners’ at the firm do not typically see female founders coming to the final deal table, and if we can’t explain who you are, then we can’t sell you.” 

I found this so odd considering my un-pedigreed co-founders and I had already done it—we built it, they came—the products worked and we had repeat business, consistent recurring revenues, and happy customers. Our NPS score was off the charts for FinTech. We had more organic press than any other fintech—we were in the New York Times, Wall Street Journal, Fast Company, and countless other mainstream press. We also had social capital, considering our enterprise partners were the likes of Comcast, Visa, Unilever, American Express, adidas, P&G Ventures, Novartis, and the list goes on and on. We have a team of almost 20 diverse, brilliant individuals and together we, quite literally, had already built a successful business. So why did they have to sell us as individuals at this point? The proof was in the pudding!

 

This was a heartbreaking piece of feedback to get, and one that we could not do anything to fix.

 

Important Note: The rise of female and diverse partners at VC firms doesn’t mean that they are the type of "partners" who can write a check. Some of them are “partners” in title only, invariably because the firm needed more female or BIPOC partners. Some they hired anew, and some were analysts who were promoted to partners, but given no power to write a check. 

So, the whole time, I thought I was pitching “partners” at this well-known Silicon Valley firm, when I was really pitching glorified analysts who were trying (and to be fair, these folks were cool and really did try) to package IFundWomen up to take it to the real partners who write the checks. You remember, the partners who “rarely if ever see female-founded companies at the final deal table.”

Meanwhile, back at the ranch, like many female founders, I’m homeschooling my kids, absorbing all of the household responsibilities. I’m a single mom—which is definitely not listed in the founder pedigree handbook—and running a rocket ship of a company that is growing faster than we can handle, hence the need to raise VC. I’m exhausted.

There you have it. The 2020 global pandemic has literally taught the VC world nothing. There have been studies upon studies about how the pandemic disproportionately affected women and people of color, like this one done by McKinsey, LeanIn, and The Wall Street Journal. But at the end of the day, the VC community just does not fundamentally care.

Take Andreessen Horowitz’s recently announced fund designed to invest in underrepresented and underserved founders. The Talent x Opportunity (TxO) fund, is a whopping $2.2 million in donations from the firm’s partners. According to the firm, TxO will invest in a small group of seed-stage startups in the first year and expand in size going forward. 

“We are looking for entrepreneurs who did not have access to the fast track in life but who have great potential,” said the firm in their blog post. The use of the word donations in the announcement will tell you everything you need to know about Andreessen’s stance on funding minority-run companies. 

 

Silver lining time: there is a solution to this pervasive funding problem. 

 

Do you know who does care about the health and growth of your businesses? BRANDS. Smart brands know that their customers, i.e., you, are suffering from the pandemic at epic levels, and they want to support you and your startup so that you can not only stay afloat while there is no venture capital available to you, but importantly, to grow your business into a sustainable, profitable entity. Your success is their success. This is a virtuous cycle. We like this.

As market-makers and innovators do, our amazing team at IFundWomen built an end-to-end enterprise brokered grants logistics product in mid-2019, way before the pandemic. We knew that brands were going to disrupt VC for women founders. And disrupt they did! In 2020 alone, IFundWomen received over $8M in commitments for business grants for our members—almost 4X what Andressen Horowitz committed to “underrepresented founders”. And the best part is our capital is non-dilutive and debt-free.

 

2021 will be a huge year for IFundWomen’s Members. Mark my words: There will be funding, there will be coaching, and there will be more, bigger commitments from the amazing brands who are putting their money where their mouths are and funding women founders. Need help launching, growing, or funding your startup? Take our startup journey quiz and a coach will follow up with you with a personal plan based on your results!

Bring it on 2021!