The first $600,000 came easily for Arum Kang, CEO of the dating site Coffee Meets Bagel. “We were able to raise it pretty quickly and it came without too much trouble,” she says of the company’s initial seed funding in 2012. But when the Korean-American founder went back for more money as her startup grew, she noticed something odd: Coffee Meets Bagel, which she says now has "millions" of active users, was raising less money than male-run competitors like Happn and Hinge, both of which raised more than $20 million in venture funding within a few years.
“I started to wonder, ‘Am I at a disadvantage because of my gender?’” says Kang, who just closed a $7 million Series B funding deal in early May, bringing the company's total to $18 million. “The valuation was considerably lower than the market. I really felt underestimated,” she adds.
Industry statistics suggest that Kang isn’t just being paranoid. Women run two out of five businesses in the United States but received less than $2 billion of the $84 billion total in venture capital funding in the U.S. in 2017, according to research firm PitchBook. The deals themselves are much smaller too: Women-led companies currently get an average of $5 million per round versus $12 million for men.
“There's an inbuilt stereotype among VCs that female founders are less likely to succeed, and thus, in a vicious cycle, they are given less funding and face a steeper climb toward success than male founders,” a PitchBook article noted.
To end such blatant disparity, women founders and venture capitalists are working together both to advise each other on how to raise capital and to get more women into the venture capital ecosystem. The goal: to double the number of women venture capitalists and women-led companies that get funded within the next ten years.
Several groups are leading the charge. Founders for Change, which debuted in April, is comprised of hundreds of startup founders who have pledged to consider the diversity of the VCs competing to fund them before choosing a backer. Female Founder Office Hours, formed last fall, arranges one-on-one meetings between women VCs and founders looking for advice. (Both groups are part of the non-profit All Raise.) There are also some venture firms—including Female Founders Fund, which closed a $27 million fund in May—that invest solely in businesses run by women.
“What’s happening among the women is inspiring,” says Kara Nortman, a partner at the venture firm Upfront Ventures. “Every woman in the venture capital industry knows each other.”
A failure to communicate
Part of the challenge women face comes from their reluctance to exaggerate. “When a man pitches, you cut their numbers in half and when woman pitches you double their numbers. Women will do a little less of the confident handwaving,” says Nortman, who sits on the board of four companies with women CEOs, including the luxury bedding brand Parachute and the cloud software firm Qordoba.
Another handicap is the way VCs of both genders size women up. “Investors tend to ask male entrepreneurs promotion-focused questions and female entrepreneurs prevention-focused questions,” according to a study published in April in the Academy of Management Journal. Promotion-focused questions center on hopes, goals, and ideals, whereas prevention-focused questions cover issues like safety, security, and loss prevention.
As it turns out, the more positive questions a founder gets asked, the more likely they are to get funded. Since female founders get asked the more negative questions, they get less money. They are also less likely to raise money in subsequent rounds, according to PitchBook.
Other challenges are more subtle. When Kang pitched her woman-focused dating site, which initially only gave daters one match a day, “It was super hard for [male investors] to empathize” with the challenges women face with being inundated with messages on dating sites, she says. That made her business model a hard sell since investors are more likely to back an idea that personally resonates with them. “If you like the person and can relate to the product then you are more likely to get excited about it,” Kang adds.
To bridge that perception gap, Kang says she relied heavily on data in her pitches: “You really need to be able to demonstrate that your customers love you.” For a dating site like Coffee Meets Bagel, that meant showing the percentage of users who used the service each day and the amount of time spent using it. “Even when we were small, it was really high.”
Investing in change
While most VCs rarely invest in firms founded by women CEOs, some funds invest exclusively in them. Female Founders Fund is one of them. In May, they announced a $27 million seed fund financed by Melinda Gates, SoulCycle cofounder Elizabeth Cutler, and Bumble founder Whitney Wolfe Herd, among others. The fund's portfolio currently includes fashion site Rent the Runway, wedding registry Zola, and Arianna Huffington’s sleep startup Thrive Global.
“Female diversity at companies leads to better returns in both in the private and public sectors,” says Female Founders Fund co-founder Sutian Dong. “Moms are the most efficient employees. They get things done,” she added.
The fund’s average investment is around $500,000, and Dong says they seek out startups others may have been overlooked by others. “We don’t care what the rest of the market thinks. When everyone thinks it’s a good idea, that means the price goes up. We’re going against the grain and there’s massive returns in that.”
Added Kang, “Women really have to help women solve this problem.” To that end, she has signed up to be a mentor to other women founders looking to gain funding. That can involve anything from making an introduction to a VC to ensuring sure founders have what Nortman calls an “objections handling document” —a list of answers to whatever push back founders get hear from potential investors.
Nortman also advises founders to know their numbers in terms of anticipated growth and revenue. “They don’t have to be right, but showing them the clarity of your thought process and that you’ve spent the time to do the thought process and can make adjustments,” is a winning quality.
One last tip: Never leave a meeting without making an ask. “So many women leave the room without making an ask," says Nortman. "It’s sales 101.” That request can be everything from asking about the investor’s process for vetting companies to asking for next steps—all with the end goal in mind of getting the funding your startup needs to soar.
Follow Anita Hamilton on Twitter.