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Only 3% of invested dollars went to female-only founders in 2019. According to a Crunchbase report on gender disparity in startup funding, female-only founded companies raised $6 billion dollars; their male counterparts, $195 billion.
In this episode of B-Side, Nicole Denholder, founder and CEO of Next Chapter Raise, tells BusinessWorld reporter Patricia B. Mirasol why this gap exists and what women entrepreneurs—and the business community at large—can do about it.
Next Chapter Raise is a funding ecosystem based in Asia with one mission: to get female founders funded faster.
Female founders face a steep uphill battle.
- Key-person risk
“Many female founders are sole founders. If they fall ill, the business could stop,” said Ms. Denholder. “A sole founder won’t have all the skills necessary anyway to build a business.”
- Industry bias
Women are expected to work in stereotypical industries such as fashion and wellness, less so in fields such as technology and engineering. “The expectation is that women aren’t that engaged and working in those industries so how do they have that industry knowledge? Or how do they understand what the problem is? Or how do they understand the client?” Ms. Denholder said.
- Lesser capital
Men start their business with twice as much financial capital as women. Women, on the other hand, bootstrap for two to three years on average, Ms. Denholder said.
Find a co-founder that complements what you bring to the table.
Ms. Denholder advised looking at the way the team is built and what the business needs, especially if you happen to be a sole founder.
“Make sure you have the right agreements in place, and clarity in roles and responsibilities. Regardless of gender, you need to understand what both of you bring to the table,” she said. “Over time, you need to make sure you’re continually aligned to be delivering on the business.”
Even if asked the wrong questions, reply with the right answers.
Investors, too, demonstrate unconscious bias in how they assess founders. A 2018 study by Dana Kanze, Laura Huang, Mark A. Conley, and E. Tory Higgins discovered that men are asked “promotion” questions, or questions about how great everything will be. Women, meanwhile, are asked “prevention” questions, or questions about how horrible everything will be.
Examples of prevention-based questions are: “How long will it take you to break even?;” “How predictable are your future cash flows?;” and “Is it a defensible business wherein other people can’t come into the space to take share?” Examples of promotion-based questions include: “How do you plan to monetize this?;” “What major milestones are you targeting for this year?;” and “What’s the brand vision?”
Those asked promotion questions were more likely to answer in promotion-based ways, which left a positive taste in an investor’s mouth. The result from the study showed that male-led startups ended up receiving five times more funding, with promotion-based Q&As receiving $16.8 million in funding, as compared to the $2.3 million raised from prevention-based Q&As.
Female founders can counter this unconscious bias by being aware of the language they use in their responses. Answering in a promotion-based manner is preferable to answering in a prevention-based way. The former tend to include words such as “growth,” “acquire,” “plans,” “targets,” “milestones,” and “vision.”
The best funding type will depend on where you are in your business journey.
Funding a business is not one-size-fits-all. Female founders need to determine what stage the business is, what the goals are, and what the funds are needed for—whether it be working capital or investment growth.
Those in the idea or pre-seed funding round, or the stage where startups are trying to get their idea off the ground, might seek the assistance of friends and family. Angel investors, meanwhile, may be tapped for those in the seed funding round, or the phase where the founders are perfecting their product or service.
Ms. Denholder advised looking at accelerators and rewards-based crowdfunding in the idea stage, and then moving on to venture capital for the later stages.
“Look too at competitions and grants programs. Often, you don’t just get money but also a bit of media. You might get mentoring. Those can really help legitimize or boost your business,” she said. “Think about it in the longer term. Plan out your funding journey alongside your business plan. If you’ve set goals and you have plans to achieve them, analyze: what money do I need to get there?”
Tapping a supportive network will help leverage resources and open doors.
“At Next Chapter Raise, we built the business around three aspects: community, knowledge, and access to the investment community,” said Ms. Denholder. “We’re trying to make female founders feel they can be an equal at the table and navigate the discussions around funding.”
She added: “There’s not a lot of female role models out there. It’s really great to be able to connect women.”
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