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July 20, 2016

Women: Want startup funding? Ask another woman

Photo / Tim Greenway
Photo / Tim Greenway
Veterinary company Putney Inc. completed a $200 million M&A exit on April 22. Founder Jean Hoffman said she raised $60 million for the company, which she started in 2006. A Harvard Business Review article cited gender differences as one reason other women haven't been as successful in finding venture funding or exits for their companies.

Women entrepreneurs may have a better chance of getting financing and eventually having an exit for their startup if they are financed by venture capitalists with female partners, a Harvard Business Review article published Tuesday found.

In fact, female entrepreneurs need to know that securing financing from an all-male venture capital firm can drastically reduce their chance of a successful exit, wrote Sahil Raina, assistant professor of finance at Alberta School of Business. Alternately, venture firms should recognize that having female partners improves the chances for female-led startups to succeed.

The reason only 17% of female-led startups successfully exit venture financing compared to 27% of those led by males is likely the ability of venture capitalists to advise them, Raina wrote. This is where female venture capitalists can give women entrepreneurs an edge, as they know how to evaluate them, he wrote.

"When you examine startups by the gender of their founders and their backers, you find that a potential driver of low female participation and worse performance of female-led startups is VCs' ability to evaluate and advise them," he wrote.

Raina said more studies are needed to help push up the meager 9% of entrepreneurs who are women in venture capital-financed, high-growth technology startups. That percentage is in stark contrast to women making up nearly half the workforce and being majority owners in 36% of small businesses.

Business loans hard to get

In a separate study, the Consumer Financial Protection Bureau found women are having a tough time getting business loans from banks and even angel investors.

A recent study by the American Express Open found female-owned business employ 9 million people and generate $1.6 trillion a year in revenue, and are growing at five times the national average. But that growth will be capped if women can't get access to capital, according to an article in The Guardian.

The newspaper said that a couple years ago, a report by Democratic staffers of the Senate small business and entrepreneurship committee found that for every dollar of conventional small business loans granted to woman, another $23 went to men.

While the article said there are many reasons for women not qualifying for loans, including poor business plans, another study by the Institute of Government & Public Affairs did find that gender as well as race have dramatic impacts on loans and the size of the credit line.

Women have fared well in crowdfunding. An early study of Kickstarter campaigns from 2009 to 2012 found 69.5% of women's projects got funded compared to 61.4% of men.

More efficient or less funding?

Entrepreneurs in general needed an average $17,500 in 2015 to start their businesses, and they financed 57% themselves, according to the Global Entrepreneurship Monitor 2015 U.S. Report released Tuesday by Babson College and Baruch College. Women still are on the short end of that stick, reporting needing half as much money to start companies as men.

The report said that's either because they felt they could do what they needed with fewer resources or that they have fewer resources to apply to their businesses.

Read more

Morning Dew Farm turns to crowdfunding in hopes of 68-acre purchase

Blue Hill Co-op steps up to the plate as first Fund-ME business

Venture capital deals not as soft as believed; Maine sees 5 deals in Q2

Venture-backed biotech companies race to public markets

Following sale, Putney founder gifts nearly $1M to employees

Startups in Maine need to move quickly to become mid-sized companies

Putney sold for $200M to UK veterinary company; founder to leave

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