Is there gender bias in the venture capital industry that makes raising working capital more difficult for female-led businesses?

A 2017 American Express study reports that women-owned businesses account for 39 percent of all U.S. businesses. Those businesses report a 103-percent increase in revenues since 1997. Not too shabby, right?

Yet this year funding database PitchBook tracks 2018 year-to-date venture capital funds raised by women-led companies at $7 billion using its own proprietary data. This only accounts for 12.6 percent of all VC investments in 2018.

That's pretty shabby.

Let's have a look inside the gender gap in venture funding with two women navigating the space—a founder and a venture capitalist. Each has a unique perspective on gender bias in fundraising and how it affects working capital and subsequently, growth rates for women-led businesses in today's economy.

Real Talk from a Founder

When Melissa Scott set out to launch MODEFY, a sportswear brand that helps women show off their skills, not their skin, the marketplace gap was clear. So was her company's solution. By creating sportswear for an overlooked demographic (women who choose to dress modestly for cultural, religious or personal reasons), she was filling a need in the global activewear marketplace that went beyond images of photoshopped and scantily-clad models and professional athletes.

In an industry ruled by materials sourcing, prototypes and manufacturing, working capital was a must-have.

I would encourage investors to let the data speak for itself. Statistics like the ones we've seen, and countless other funds have published, is all the evidence we should need to keep elevating women.

—Tracy Dubb, co-founder and partner, M3 Ventures

The venture capitalists she first approached agreed, but pursued an odd line of questioning following her pitch.

“At one pitch meeting I was asked if I had any C-level male members to bring a male-perspective and diversity into my company's mission," Scott recalls. “The irony of his statement is that for decades, activewear has been a male-led industry and it continued to miss the mark when it came to women who dressed modestly.

"Here we were," she continues, "a female-led company, stepping up to the plate saying 'we get it and we're here to make it possible for you to be competitive without making sacrifices to your modesty.'"

Apparently, that wasn't enough.

Tracy Dubb, co-founder and partner of M3 Ventures, a consumer VC firm focusing on youth culture and healthy living, sees the same kind of gender bias proliferate when founders walk into a room.

“Marital status, childrearing status, age and even demeanor are just a few of the factors that women seem to be forced to explain more than men," says Dubb. “Sometimes opposition comes in the form of outright questions, but too often it comes in the form of quiet bias."

How Gender Bias Inspired a Strategy Shift

Scott, at least, got the gender bias out on the table in the early stages of her fundraising. This inspired a tactical shift in who she approached for funding.

“I deliberately decided not to change the messaging in our pitch for funds but to change the audience to whom we were pitching," says Scott.

With a product, tagline and pitch deck that clearly conveyed what MODEFY offered its niche yet large demographic, she decided to go after women investors who understood what the women's apparel industry looked like and the problem MODEFY sought to solve.

In this instance, being a woman-led business served her in some regards.

“We could use ourselves as examples why our products are an improvement over what's currently available in the marketplace," she explains.

When pitching VCs comprised primarily of men, being her company's target market did her no favors. The wallets stayed closed.

“Using the exact same pitch and documents with female funders, we were able to get some wallets to open simply because they understood the need," says Scott.

This brought in the working capital MODEFY needed—but didn't solve their funding problem in total.

“Instead of being able to dedicate my full attention to outfitting a team en route to a world championship or scouting for patterns for next season's designs," she explains, "I'm still dealing with knocking on doors to get funding and that takes me away from keeping us advantageous over our competitors."

Putting People Ahead of Pretext

Some people believe that women aren't equipped to run businesses or that women-led businesses are riskier investments.

Dubb is a woman taking a holistic approach to the companies her firm funds. For her, it's about setting an intention.

“While our firm invests in both male- and female-led companies, we set out with a mission to support equal opportunities for women, and as a result M3 Ventures has backed female and male founders at a nearly 1:1 ratio," says Dubb. “What has been incredible to see is that women-led companies have been responsible for over 75 percent of the value created in our portfolio."

Dubb often finds that with the innovators her firm regularly meets, the market data to influence funding is sparse, which requires a different approach to come to the ultimate funding decision.

“We are often investing in people as much as we are investing in an idea," she says.

With the returns M3 has seen in their own portfolio companies, she encourages other investment firms to follow the data, not the gender.

“I would encourage investors to let the data speak for itself," Dubb says. "Statistics like the ones we've seen, and countless other funds have published, is all the evidence we should need to keep elevating women."

Dubb's best advice to women seeking funding?

“Your own experience is what makes you uniquely positioned to start your business," she says. "Don't shy away from the part that is your experience as a woman, but don't lean on it either."

She advocates for founders to lead with honesty about who they are and what got them to where they are today—and to not be afraid of taking an assertive approach.

Scott has her own assertive advice for female founders as well.

“Don't lose your voice in the company throughout the process. While getting the foot in the door may be harder at times, don't step aside so a male can be the voice of your company," she says.

If MODEFY's growing success and the track record of women-led companies in M3's portfolio are any indication, VCs should be champing at the bit to bring these companies the working capital they need. ROI knows no gender lines, and they just might find that those long-held biases are cutting into their long-term returns.

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Photo: Getty Images