This is an excerpt from “Mind The Gap — And Close It: The Ellevest Guide to Dominating Your Financial Future,” our guide to closing gender gaps. Psst, you can read it all here.
Let’s say you’re one of the increasing number of women who are looking to start their own business. More and more women are doing it; in fact, by some sources, we are starting businesses at double the rate of men.
But...the venture capital world doesn’t “get it” on funding women-led businesses. Depending on the year (and we’re not talking 1954, we’re talking the past few years), companies with at least one woman co-founder receive less than 10% of total venture funding. As an entrepreneur myself, I think it’s so important to close this gap, and I’m going to give you the most practical advice I can. The cost of this is not just the cost of economic production or the money you could make running your own business. It can be the cost of not living out your hopes and dreams.
That’s the bad news.
The good news is that there are lots of groups springing up that specifically fund women-owned businesses. And they’re smart to do so: First Round Capital has found that its investments in businesses with at least one woman founder outperform their other investments by 63%. More good news: the emergence of crowdfunding sites has democratized access to funding for new ventures, and women are outperforming men in many cases. In general (though we’re slightly biased here), women excel at storytellings and are more in tune with their target audience than men. Crowdfunding provides an open platform to benefit from these strengths.
What’s an entrepreneurial go-getter to do?
My best advice on how to raise money:
1. Determine what type of funding is best for your business.
The first place entrepreneurs often look for funding is angel investors and VC firms. But they may not be the most advantageous options for you or for your business. If you’re launching a small business with steady growth that will generate revenue early on, then you may be better off funding it with bank loans. Using debt for financing (and note: this is “good debt,” and different from the personal debt we talked about previously can help you retain 100% ownership of your company — and your profits. Be thoughtful about what your business goals are, and match the type of capital you need to those goals.
2. Act confident.
I’ve done some angel funding, and here’s what I’ve seen: the guys tend to come in ready to “disrupt the industry” / “change the world” / “make a dent in the universe.” The women state more modest goals, and tend to focus more on the downside and what can go wrong.
Now, that’s one of the things that can make us great business people (remember those higher returns that women-run businesses earn?); but in this venue, confidence wins the day.
3. Network, network, network.
A strong network may be even more important for an entrepreneur than for women in more traditional business roles (as we covered in Chapter 2), because it starts with funding. A cold meeting is tough to get and even tougher to “win.” So who do you know, who knows somebody, who knows somebody?
4. Give freely to your network.
As you’re building your network, give as much as you can. I make it a routine practice to lend a hand to someone in my professional circle at least once a week. I don’t worry about whether or not it’s worth the effort, or what I’m getting in return (it’s OK if the answer is nothing). Make an introduction to a candidate for a key hire, introduce them to a potential investor, or share tickets to your table at the charity gala. This will pay dividends over and over the long term and I’ve found the more I give, the more favors come my way when I need them most.
5. Rock your elevator pitch.
I hate the fetishization of the elevator pitch…but what’s your elevator pitch? What can you communicate convincingly in 2 minutes? How about 30 seconds? What is the problem you’re trying to solve? Why is it a real issue? How are you going to solve it? How are you uniquely qualified to solve this problem? And what keeps others from doing exactly the same thing?
If you can’t answer these questions, you don’t have your elevator pitch down yet.
Another way to think about this is imagine you’re presenting to a partner at a VC firm, and he’s going to meet his partners for lunch after. When he walks in and can’t wait to tell them about your pitch, what are the one or two key concepts you want him to relay?
Test it out on your friend/partner/sibling and ask yourself, “Could my message be easily repeated if someone asks him/her what I’m up to?” (Hint: if the answer’s not “yes,” refine your message until it is.)
6. Fine tune your case for funding your business.
One of the biggest mistakes I see first-time entrepreneurs make is tying their funding asks to tactics rather than goals. For example, “I need $500,000 so I can hire engineers,” or “We’re raising two million dollars to increase our runway.” What investors hear is “I don’t know what I’m trying to achieve with the money you giving me.”
My advice: keep it simple, and be goals-oriented. One of the best ways to think about your business is as a story with several chapters. Chapter 1 may be building a prototype, and so your pitch to funders is “We need $500,000 to develop our prototype.” In order to do that, of course you need to hire engineers, but that’s not the focus of your story. Chapter 2 is likely acquiring x number of users or customers, Chapter 3 is about scaling the business and refining the acquisition model, and so on. And it’s often fewer “chapters” than you’d think — more like 3-5 rather than 10.
The key here is that inflection points in the business should clearly align with each round of funding. This will instill confidence in potential investors by showing them you’ve thought about what their dollars will accomplish for the growth of the business.
7. Everything takes longer and costs more than you think.
Raise more than you initially think you need...but don’t go for so much that you’re turned down. Legal fees, technology costs, vendors, and consultants can add up quickly and it often takes much longer than you estimate to achieve milestones and generate profits. As a guideline, it’s good to have two years of expenses in the bank.
8. Keep at it.
It may take 10 or 20 — or 50 — no’s to get a yes. Don’t stop until you have what you need. And besides, on the upside — you’ll develop some pretty thick skin and refine your pitch to perfection in the process.
9. All investments are not created equal.
When you do have an offer, evaluate the terms with the help of a great lawyer and other advisors who are on your side. Term sheets can be full of jargon about “participating liquidation preferences” and “full ratchet anti-dilution provisions” that make all the difference in the world between two similar sounding investment options. It’s worth noting that investors do these deals all the time, while entrepreneurs typically see them once every couple of years, so don’t go it alone.
10. A “yes” is not a “yes” until the money is in the bank.
So don’t stop fundraising once you get a yes. A lot can go wrong between the handshake and the wire being received. Keep doors open.
Feeling good about getting funding? Get your copy of “Mind The Gap—And Close It: The Ellevest Guide to Dominating Your Financial Future” for tips on dealing with other gender money gaps.
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