Sukhi Jutla had no illusions about raising venture capital for her startup, MarketOrders, a blockchain-based global marketplace for the gold and diamond jewelry industry. She knew that in the UK, only 1% of venture capital (pdf) goes to women. And as a minority woman, she faced even steeper odds.
She decided to try to raise the money anyway. She reached out to VCs on LinkedIn and at tech meet-ups, and showed up at their open office hours. After hundreds of meetings over several months, she finally got a bite from a two-man firm that was interested in investing £250,000 pounds (about $329,000).
Jutla started getting uneasy when the investors asked how long it would be until she ran out of money and dragged out their conversations for four months—a month short of when she’d said her cash would dry up. “I felt they were trying to waste my time and get me into a desperate situation,” she said.
After finally making an offer, “one of them kept calling me at times I didn’t think were appropriate—10 pm or 6 am—demanding financial information,” she recalls. “I told him very politely I’d be grateful if you could keep this relationship within office hours.”
“If I invest in you, I own you 24/7,” he responded. Then he threatened, “News travels fast in small circles. You’ll never raise venture capital because of your attitude.”
A recent study by Boston Consulting Group found that the global GDP would rise by 3-6% if women participated equally in entrepreneurship and were afforded more access to investment capital. But little has changed for women in accessing capital in the last 15 years.
Though the amount of venture capital going to all-female founding teams is at an all-time high of $3.3 billion, that only represents 2.8% of all capital invested in the startup ecosystem, according to Pitchbook. Globally, just $20 billion, or 3% of all global capital, went to female teams, according to Crunchbase.
Venture capital firms are dominated by men, who overwhelmingly bet on male CEOs when dishing out funding. “Those are high discretionary decisions,” says Amanda Elam, Diana Institute Research Fellow at the Center for Women’s Entrepreneurial Leadership at Babson College. “This is where people judge the individual and their ability to lead.”
Some women entrepreneurs are looking at the lack of momentum for women in the venture capital world and deciding they’re better off turning to alternative channels of funding.
One area where it’s easier for women to find funding is crowdfunding. They turn directly to the public to raise money by selling equity to their companies or pre-orders for products. “Women seem to be very comfortable with going straight to the market to say, ‘Here’s my idea,’” says Elam.
The public seems more willing to give them a chance than VC firms are. According to Indiana University’s Kelley School of Business, women are more likely to succeed in raising funding on crowdfunding platforms than men are, because investors see them as more trustworthy. There is a considerable body of research looking at why women fare poorly when raising venture capital, which points to factors such as the lack of women partners and managing partners at venture capital firms, unconscious bias against women, women’s lack of connections in a who-you-know industry, among other factors. Winning crowdfunding, in contrast, doesn’t depend on the decisions of a small, very homogeneous group of elite gatekeepers.
One startup designed to make the most of women’s success in crowdfunding is EnrichHER, which helps woman-owned firms apply for loans. The site also offers direct loans and lines of credit up to $250,000. Research released this fall by Babson College recommended that female entrepreneurs consider debt financing, given that VC funding can be a “black swan” event—one that is rare and unpredictable—particularly for women.
But if a founder wants to scale her company, alternative financing can only take it so far. “The challenge with crowdfunding is that it’s largely unaccredited investor dollars,” says Elam—meaning the investors may not have much money to give, compared to accredited investors. “Crowdfunding is great for seed funding,” she adds, but not for much beyond that.
Some women are building relationships with VC firms through the side door. Renee Fry, CEO of estate planning software firm Gentreo, knows only a tiny percentage of women win venture money. “What you need to do is either be part of that, or find alternative methods,” she says.
To build credibility with potential investors, she entered a competition for women entrepreneurs with high-growth startups at Babson College, which runs a well-known program in entrepreneurship. She won a cash prize and, through the contest, attracted the attention of a private investor who put in $100,000. That track record later helped her win the attention of an investor from Sequoia Capital, a leading venture firm, who introduced her to Sequoia Scout, its seed fund, where she raised another $25,000.
“If they believe in your business, they can write a check personally and get you on the Sequoia radar for later,” says Fry. She hopes that by becoming known to the firm, she’ll be one of the few women to beat the odds and raise funding. “You really need to know someone,” she says.
Jutla, meanwhile, gave up on the idea of raising venture capital for MarketOrders. “I decided to take 100% responsibility for raising the funds I needed,” she says. In June, she ran a four-week campaign on the crowdfunding site Crowdcube, raising £439,840 ($579,719)—almost twice as much as the VC investors had offered her.
She has no regrets about leaving the VC world behind. “Most of their deals were just rubbish,” she says. She only sold 9% of her company’s equity, far less than the investors were asking. Today, she’s built the company to 14 employees. Its tech platform is still under construction, but it’s already brought in £100,000 ($131,575) in its first year.