Let me start by saying that fewer than 1 in 10,000 new businesses in the US receive venture capitalist (VC) funding, so being backed by VC is by itself a very difficult task.
Moreover, current research shows that female entrepreneurs still face a lot of additional difficulties during negotiations with VCs related to gender-related biases. It was shown that female founders need to make a lot more efforts before their negotiations with VCs could even begin, otherwise it could be hard for them to present their ideas in the first place.
The most plausible reason for that is that there are simply not a lot of women working in VCs which usually supply startups with funding. Research indicates that only 7% of partners of the top 100 VC firms are females.
Participation of females in the venture capital (VC) industry remained dramatically low even after unprecedented growth years of early 2000s. It’s in line with the fact that venture capital firms usually consist of less than 10 people and are historically male dominated.
Due to a very narrow focus of VC firms as well as the fact of their small size, even for qualified females it’s a very hard task to begin working for a VC firm.
In 2008, only 3.8% startups were founded solely by female entrepreneurs in the US. In 2022, the situation improved and there were 7.2% of new ventures founded by women. On the other hand, funding for female-led startups didn’t change much during all those years, they had just 1.8% of all VC capital in 2008 and in 2022 it went up just by 0.1% to 1.9%.
Peter Turner
5 Tips to help secure start-up financing
While working at one of the largest accelerators for startup companies in Houston, Texas; I also first handedly observed very similar picture of female founded startups underfunding. But based on my experience, I would also like to give some advice to female founders of how to increase their chances of being funded.
1. Embrace acceleration programs
First, you need to embrace the importance of acceleration programs. Accelerators connect founders with mentors, potential investors, and other entrepreneurs. These connections are invaluable for gaining insights, finding funding, and navigating the startup ecosystem.
Attend workshops, networking events, and conferences to expand your network as well. Participating in an accelerator introduces founders to the broader startup universe within their city or region. Understanding local dynamics and building relationships can open doors for collaboration and growth. Engage with local industry associations, chambers of commerce, and entrepreneurial communities.
2. Assemble a balanced and diverse team
Second, try to assemble a balanced and diverse team. Founders often focus on technical expertise but overlook the importance of a well-rounded team.
While technical skills are crucial, don’t neglect other areas. A strong tech team alone won’t guarantee success. Consider hiring individuals who bring diverse perspectives, such as design, marketing, and user experience. Include experts who can provide financial forecasts and appeal to potential investors.
Also consider having someone on the team who excels at communication and can handle investor relations, pitch presentations.
3. Create an effective pitch deck
Third, craft an effective pitch deck. A compelling pitch deck is essential for attracting investors. Clearly articulate the problem your startup solves, why this problem is important and how your solution addresses it.
Investors want to see a strong fit between the problem and your product or service. Introduce your team members and their expertise. Investors invest in people as much as ideas. Provide realistic financial projections, including revenue, expenses, and growth and be transparent about your assumptions.
Many founders overlook the final slides in their pitch decks – they should address the startup’s immediate needs, such as funding requirements for the next phase.
Be specific about what exactly you’re seeking and how you plan to use it, otherwise potential investors might be confused of why you are making the presentation in the first place – do you need expert advice, their connections, funding or something else entirely.
Anthony Witherspoon
4. Retain control
Next, it’s better to accept less financing initially while retaining more control over your company.
Losing control to aggressive funding terms can hinder long-term success. Taking $100,000 for 1% ownership is often wiser than accepting $1,000,000 for 10% if it means maintaining control and organic growth in the future.
5. Consider your location
Another important thing when starting your own business is the environment that is suitable for your new company.
For example, California is leading the nation and enjoying 39.37% of all funded startups during the period of 6 years, New York is on the second place with 17.56%, Massachusetts is the third with 5.53% while Texas and Florida are on the 4th and 5th spots with 4.57% and 3.40% respectively.
Cumulatively those five states represent 70% of all funded startups in the US during the years of 2017-2022 and have their own preferences in terms of the industry (tech/medical, etc.), which is something that startup founders need to consider as well.
In conclusion, startup financing often hinges on strategic decisions, team dynamics, and effective communication – all that could be taught in a good acceleration program.
By considering these factors, founders can build resilient companies that thrive in the competitive startup landscape. But all of that usually starts with a choice of the right mentor within the acceleration program. Without that initial boost, it’s very hard to be financed by a reputable VC or receive any financing altogether.
