Women and Venture Capital The truth behind women and VC funding--and why we don't seem to be getting our piece of the pie

If you ask most women entrepreneurs about venture capital, the word on the street is we just don't get it. Literally. Only a small percentage of women receive venture funding each year. And for those of us who work in those circles, we may only know a handful of women who've secured it and even fewer who kept their companies afterwards. Many posit that the nearly all-male venture capitalist arena doesn't give women a fair shake or that qualified women can't even get to the table.

But perhaps, figuratively, we just don't get it either. If you buy into the idea that women view risk differently, a topic I wrote on back in March (see "Women Entrepreneurs and Risk"), it may be that women simply elect to not engage in the VC world at all--one where the risk-reward ratio is very high. Further, women entrepreneurs who might be good candidates for VC funding may not adequately prepare themselves and, as a result, may be more easily discouraged from the tough process.

Recently, I met a woman entrepreneur who defied conventional wisdom. She secured millions in VC funding for her IT services company. The mother of three young kids had no fear about going after funding. Her secret? Naivete. She openly shared how she had no idea VC funding was so hard for women to get, so she wasn't nervous or put off by the process. She remained busy running her business and took everything at face value. She has an excellent relationship with her investors and maintains control of the company.

This led me to ask the question: Are too many qualified women psyching themselves out when it comes to venture capital?

To answer it, I turned to Julia Spicer, executive director of the Mid-Atlantic Venture Association, an alliance of more than 500 VC professionals representing $90 billion in capital. She also founded and ran two of her own companies, worked inside a VC firm and held positions in large corporations. She's seen the intersection of women and venture capital from all sides.

WomenEntrepreneur.com: How many VC deals go to women entrepreneurs, and are they increasing?
Julia Spicer: Statistics from Growthink Research show that in 2004, women-owned companies accounted for less than 5 percent of all venture-backed companies. Clearly, that's a small number. While I think the trend is getting better anecdotally, I haven't seen the research that bares that out yet. A major contributing factor may be that most venture capital goes toward the technology industry, which has fewer women entrepreneurs. But in health care, 55 percent of all venture deals went to women-owned companies. It's very market dependent.

Why don't more women receive it, in your experience?
Spicer: To start with, there is simply a much smaller pool of women. There are a couple reasons for that. One is that many technology companies are started by engineers, a career dominated by men. VC funding also represents a certain kind of model, created by men, that has its own tenets. It's fast-paced and requires scalability and thick skin. Whether for lifestyle reasons or otherwise, it's a model some women may not have historically been comfortable with. However, I see opportunities there for women who want to seek venture funding.

What should women know if they want to pursue venture capital?
Spicer: They need to have their eyes wide open. It's a tough slog for any entrepreneur, male or female. The bar is very high. I know one entrepreneur who went through 53 turndowns before receiving capital. The question becomes, what is the appetite of the entrepreneur to put themselves through that? It's a gender-neutral question. There's high risk but high reward for those who want to play within the model that exists.

Are there common mistakes you've seen women make with VCs?
Spicer: Women must learn as much about the process as possible before approaching VCs. Otherwise, to some, investment-seeking can be demoralizing when turndowns occur. I had one woman with a great management team and product express how frustrated she was when a VC asked her for her in-depth personal finances. She thought it was overly intrusive because she was female. My response was that's a typical question even bank lenders ask. Knowing at the outset that the rules just may be tough regardless helps you get your head around what the process is like.

Can you share some insider secrets about why most companies don't get funded?
Spicer: By far, most businesses don't conform to the VC model, which requires scalability and a market to sell or go public. For those that do fit the model, many turndowns come from reasons that have as much to do with the financial partner you're pitching as the business rationale. Typical reasons include that the funds don't have a partner who specializes in your space, they may have already made an investment bet on a prior deal in that market sector, or they simply don't have enough domain expertise to provide the oversight required. Funds won't usually tell you that, so it's important to know to maintain perspective.

What should women considering funding do first?
Spicer: Put together a short list of informal advisors--who aren't investors--in your market to share your plan and mission. Get feedback and determine if your company is a candidate for VC funding and at what stage in the lifecycle of your business. Many women tend to come out of the chute seeking funding early, and that's daunting because you have one shot to make your mark with investors. And if you miss that mark, it's difficult to come back.

Women are excellent at doing their homework and finding mentors, so they should use those skills to get the pitch buttoned down before approaching investors. Work with attorneys, accountants and other trusted advisors who understand venture capital and have relationships with funds to help you select a few key investors to approach first rather than blanketing the universe. With each meeting, incorporate the feedback into your plan moving forward. And remember, if a fund passes on your business, look at it as a chance to get better and press on.

Why are you optimistic that the picture for women is getting better?
Spicer: Funds have money to invest, so it's an opportunistic time for all entrepreneurs, including women. If a woman entrepreneur has the right business at the right time and can learn and embrace the rules of the venture model, then it's a great time to seek capital. I also believe the strengths women bring in management and company building are ones that resonate well with investors. It's a personal mission of mine to get a greater number of qualified women engaged in and not afraid of the VC process. Women are running scalable growth companies out there--exactly what investors are so actively seeking.