The landscape is changing, slowly but promisingly, for women entrepreneurs. Not only are more women starting businesses, including technology-enabled firms across multiple industries, but female entrepreneurs are gaining ground in running more profitable businesses and delivering higher returns to investors.
Even so, women still raise just 2% of venture capital dollars, and their company valuations remain lower than those run by men.
As a clinical professor of entrepreneurial practice at Northwestern University’s Kellogg School of Management, I have advised hundreds of women entrepreneurs over the past 30 years who have faced some type of bias during their entrepreneurial career. Given such challenges, here are five steps women can take to successfully launch their startups.
The whole idea behind good entrepreneurship is knowing how to mitigate risk for investors. One of the most effective ways is to have deep understanding of the market you’re going after, especially the “pain point” you’re trying to address for your customer. I have met many women who have built companies focused on consumer products, beauty, and health services. These women have a great understanding of their customers in these traditionally women-focused markets. Yet their companies have had less traction in raising funding, often because male venture capitalists (VCs) do not have a deep understanding of the customer and market size. I’ve even heard a VC say to a woman, “You have great metrics, but I just do not understand beauty.” Fair or not, this means getting investor attention will require companies focused on female customers to develop a detailed case on the potential of their market.
Hand-in-hand with the first step is pursuing broader funding sources. Do your homework: if a VC’s portfolio is mostly, say, supply chain and logistics, and your business is in the consumer category, then go elsewhere. There are individual investors who, by themselves or in a group, are open to different investment opportunities; for example, female Silicon Valley executives focused on empowering women entrepreneurs.
While it is great to hear from other female startups, women in corporations can provide insight into how an industry works and how to develop lucrative partnerships. If your story is compelling, these same women leaders may also introduce you to investors—or they may decide to back you themselves.
Rather than focusing on how much capital is raised (which usually puts women entrepreneurs behind their male counterparts) showcase strengths around performance. Investor Kevin O’Leary of Shark Tank fame, has said he invests in more women-led firms then those led by men because women tend to be disciplined, set realistic goals, and listen to criticism. There is also a silver lining to not raising as much capital as others: ownership stakes are not diluted as much, which means more wealth creation for the founder and stakeholders as the valuation expands.
Over the last few years teaching, I’ve been noticing a promising trend that’s visible not only in entrepreneurship, but also in MBA programs. At Northwestern University’s Kellogg School of Management, 46% of our latest class of MBA students are women— and 13% of them come from a technology background. Women are coming out of companies such as Amazon, Google, and Wayfair to start their own tech-enabled firms in a wide variety of industries. And they understand how to build a company. This is a source of talent, networking potential, and in time additional funding for women who are just starting out on the entrepreneurship journey.
As more women launch successful startups, they’ll want to put their money back to work and may be well inclined to provide backing for other women. It may take time, but the changes are happening.
Linda Darragh is a professor at Kellogg School of Management at Northwestern University.