Being a woman is difficult enough, pressure coming from internal and external sources. Being a woman in business brings about a completely diverse set of struggles to tackle head on.
One of the most common struggles that women face within their startup journey and also once deep in the trenches and ready for their first level of growth is obtaining financing.
You can have the greatest idea, product or service but what happens when you max out on your business and/or personal capital and ability to maintain or grow your business? You have little choice but to seek external capital sources. This may seem simple enough, but if your business is under 2 years old it will difficult to obtain lending from your typical financial institutions. Unfortunately, new businesses are risky for most financial lenders and their willingness to extend credit is either far too low and or non-existent without a solid proof of income that extends at minimum to the 2 year period.
This causes many entrepreneurs to seek partnerships with Venture Capital firms or find other private lenders, they can essentially become investors in your company. This is a great form of access to capital for many organizations and also a scary step to take as you now have to answer not only to yourself and protect your interests but also theirs.
How easy is it to obtain private equity funding?
Many will tell you it can be a greater challenge for women versus men. While many new funds are being created to create access to investment it is true that Venture Capital Funds are predominately held by men and statistically investments are made to men versus women, making this financing option difficult to obtain. Why is this the case?
Evidence suggests that there is a tendency for women is often pitching realistic numbers. Men so often overstate and exaggerate that investors often discount the numbers off the bat. Investors, who are often men, will assume that the women entrepreneurs are operating just like the men and inflating their numbers. Therefore, they will provide funding at lower levels than requested. Women need to understand this dynamic and approach their pitches accordingly. Meaning, if your business needs $25,000 ask for $30,000 to ensure that through potential negotiations if your offer is reduced you will end up closer to the point that you need to be.
What should you do if you are unable to obtain funding through a male dominated venture capital partnership is?
Research. Look to Women peer to peer network for venture capital funding. For example: Bumble Fund, Female Founder Fund & Government Grants!
The Government of Canada has developed a great amount of business grants that are specifically being provided for women – look into these options on the Canada.ca website under Business Grants & Financing. You must be prepared to offer a detailed application including details about your product, service, market needs in your region and potential a justification for the amount required and its intended use.
In addition to these grants, there are a number of funds directly solely for women that you can consider, here are a few:
Bumble – Yes, that Bumble. They announced the Bumble Fund to Invest in Women Founders are began accepting applications. They created this fund to combat the reality that women led startups receive 2% of venture capital funding.
BDC – The Woman Entrepreneur initiative has an estimated $200 million to invest in women led technology startups, why not join and submit your application? Their program not only provides the potential access to capital but also mentorship and entrepreneurial resources.
The Billion Dollar Fund for Women was announced in February of 2019 and has set it sights on becoming the largest venture capital fund directed solely towards supporting women led businesses in technology.
These are just a few of the resources that are available, to determine which one you should apply to requires due diligence on your part as a business owner, not only in informing yourselves as to what types of applicants are being selected but more importantly how to create a successful application that will be reviewed.
What is critical when asking someone to invest in your company financially? Transparency in your business and clearly defined answers. You must be willing to show your business income and expenses as part of this process and be able to substantiate your claims for expected revenue in the future. It may happen every so often where someone will invest in the hunch of a business owner but not often. Hard facts are what most investors rely on before they are willing to sign a cheque. Additionally, you want to offer as much information as possible to support your position, holding back only what is necessary and that may be proprietary. Being vague and unclear when asking for financing is not an effective strategy and not yield results.
Lastly, you must be willing to let an outsider into your business and ensure you obtain the appropriate counselling outside of the investor to understand exactly what that means for you and your business. You must understand clearly if you are giving up a controlling interest in your company and the expectations that investors may have in the decision-making process of your business as well.
Much of the above may sound daunting and alarming, but if you have reached this point of consideration it means you have surpassed the initial hurdles of starting a business and ready for the next level of growth. Take your time to research your options, their impact and align them with your business needs and that of yourself.
Good luck to all the incredible entrepreneurs out there!
LinkedIn: Stefanie Ricchio