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Money matters: why women founders struggle in Silicon Valley

Last spring and summer, Kathryn Minshew, co-founder of The Muse and one of Inc's “15 Women to Watch in Tech”, was trying to raise money for the female-focused job site that was growing 30 percent a month and reaching 250,000 dedicated active users every month by June of 2012. She pitched herself, her co-founders — whom she met while working at McKinsey & Company — and the Muse to any and every venture capitalist, angel investor, acquaintance, and friend she could find. The company had solid fundamentals, a strong story, and a passionate community, but the raise wasn’t going well.

At one point, the founder was introduced via email to the head of a VC firm and got a reply from one of his associates. “We were given explicit advice that if we were introduced to a venture partner in a certain way and they passed us off to an associate, we were supposed to respond with, ‘Thanks so much. I’d love to talk, but I’m heads down on a product right now and I’m only able to talk to people with decision-making ability,’” she says. She composed a reply saying as much. Before sending, she showed it to five different male friends who were also founders and they thought the tone was fine. But the response she got from the associate at the firm was shocking. “I got a massive slap on the wrist,” she says. “The tone of the response I received was, ‘Don’t get too big for your britches, little girl.’ And it happened a second time as well.” When she showed the reply to the male founders, they were amazed by the brazenness of the email. They had never received anything similar in tone and couldn’t understand why the response was so cold and angry.

In search of cash

In search of cash

After reaching out to more than 200 VCs, The Muse eventually raised $1.2 million with contributions from Y Combinator — where it was part of the Winter 2012 class — 500 Startups, Great Oaks Ventures, and others. But it was a long, arduous, and disenchanting process even compared to the struggles other companies have raising seed rounds. At every turn, Minshew found herself confronted by the unavoidable fact that she was a woman and, like so many of her fellow female founders, had to overcome additional obstacles to raise money. "When it's hard, you think it's hard for everybody. But going through it last year, there were a couple of situations where it was impossible to ignore that it would have been very different if I had been a guy," Minshew told me in a meeting space at General Assembly where The Muse has its office.

While she was trying to fundraise, Minshew had to carefully temper her attitude. "The more comfortable I am being nicely, calmly, and sweetly aggressive, the better I seem to do,” she says. “But it's a very difficult balance between coming off as strong enough to lead a company but not so strong that you're perceived as a bitch." The concept of being "nice" and "sweet" while also "aggressive" illustrates the limited area where women have to work while pitching the majority of VCs and angels.

Sometimes, the money men failed to grasp the concept Minshew and her co-founders were after. “I went into one meeting with a venture partner and he said, 'yeah, I pulled up the site yesterday, but honestly, it just isn't compelling to me at all.' I wish I had been the person who I am now because I would looked back at him and said, 'It doesn't matter that it's not compelling to you. It's not built for you.' He made it clear he had only taken the meeting because he'd be introduced [to us] by nine people [who thought he should meet with us].”

At one point, a trusted advisor even suggested she add a man to the team to add "credibility" to the small company. Although "he meant it well, you remember that [attitude]," Minshew says. This type of sentiment is all too common in the dog-eat-dog world of VC funds. A number of factors both systemic and overt combine to prevent female-founded companies from getting the same access to capital that their male peers enjoy. It’s not an unsolvable set of problems, but it is one that needs to be explored.

It’s hard out there for a startup

It’s hard out there for a startup

While female-founded startups have a few unique challenges raising money, they share something in common with male-founded companies: namely, securing venture capital is extremely difficult for almost everyone. The math works against the majority of startups. The rise of incubators and the decreasing costs of launching a startup create a growing number of companies that are fighting for the money. Fred Wilson told The Verge’s Adrianne Jeffries that, "we are seeing fundraising challenges everywhere, even in our very best portfolio companies." While the overall amount invested in early stage deals is the highest it has been since the first quarter of 2001, according to a PricewaterhouseCoopers LLP and NVCA study, the competition for that money has never been greater. A Dow Jones VentureSource study reported that funding for consumer Internet companies was down 42 percent in 2012. High profile failures — hey, Color — are hurting the market as well.

There's also the issue of serial entrepreneurs. Successful startup founders frequently begin to build again after exiting their first venture-backed company. That limits access for first-time company founders – both men and women – because the VC game is very much run by tight networks. An angel investor or venture capitalist often feels more comfortable giving money to someone who previously built a company that was successful enough to produce a return.

The struggle to raise

The struggle to raise

Across the globe, the effort of women to start small businesses is hamstrung by access to capital. Secretary of State Hillary Clinton addressed the issue in a series of speeches and many organizations are working to help solve the problem. “[Women] raise 70 percent less money than men do because of their lack of access to capital,” Lesa Mitchell, Ewing Marion Kauffman Foundation vice president of initiatives on advancing innovation, told The New York Times last June.

The issue extends to the high-tech community. The Diana Project found that just five percent of VC-funded businesses have a women on the management team, while the Center for Venture Research at University of New Hampshire reported that just 9.4 percent of the startups that took venture capital in 2009 were women-run. Dow Jones Venture Source echoed the findings in another study, finding that only six percent of the startups that took one round of VC in 2010 had a female CEO and just seven percent boasted a female founder. Although women represent less than five percent of the CEOs at Fortune 500 companies, they made up 31 percent of business school students in 2012 (up from 26 percent a decade ago) and earned 18 percent of all computer and information sciences degrees in 2008.

Part of the issue is the structure of the venture community. "VC is a network-based process. You basically fund somebody you know or somebody who knows somebody you know. It's a really tight connection," Patricia G. Greene, a professor of Entrepreneurship at Babson College and current National Academic Director of Goldman Sachs' 10,000 Small Businesses project, says.

“There’s a soft bias toward doing things that are familiar. That's white male nerds.”

The reason to fund a company or to not fund a company frequently comes down to a gut feeling. Do you believe in this person? Money men look for people who are a younger, better, smarter version of themselves. It's human nature. The typical funder is an old, straight, white male, hence the typical fund-receiver is a young, straight, white, male. “There’s a soft bias toward doing things that are familiar. That's white male nerds.” Dave McClure, founder of seed fund 500 Startups, says, “I think we are making progress. Now it's brown and yellow nerds that get funding.”


This isn't overt sexism; it's simple psychology. Alisha Ramos, who wrote an undergraduate honors thesis on female funding while a student at Harvard and now works as a brand consultant, agrees with McClure. While many of the women she interviewed were adamant that their gender was not an issue, Ramos did find that, "The whole ecosystem is very gendered male. In the end, I think there is always going to be some sort of gendered bias on behalf of males, even if they are not aware of it."

The male-gendered tilt manifests itself in two ways. There are inherent differences between how traits are perceived. "I don't want to blame men, but it's almost like it's a different language,” Laurel Touby, founder of which sold for $23 million in 2007, says. “What they see as confidence in a male, they may see as charm in a female. They may see leadership in a man, but charm in a female. They would fund leadership, but they might not fund charm.” (Disclosure: I was an employee at the time of the sale.)

“If I were a guy, you'd call this charisma. If I were a guy, you'd call this leadership.”

When Touby was attempting to get funding for her company, she received a list of questions from a potential investor and realized that they were ones that a man would not have to answer. "If I were a male, he would say I had everything it took to be a successful entrepreneur. But because I was a woman he was considering those things as something different, something not quite up to snuff," Touby, who did not want to share the specific queries, says. "I responded to him in male terms. 'If I were a guy, you'd call this charisma. If I were a guy, you'd call this leadership.' I ended with 'I am woman. Help me roar.' He recognized that he may have been trying to put me into a mold and was looking at me through the wrong filter." Touby still calls her answers the "$1 Million Memo" because he eventually invested $1 million.

Cheryl Kellond experienced this likely unintentional bias first-hand when she was attempting to launch Bia Sports, which planned to make and market the first GPS sports watch targeted to women. She met with a number of VCs in an effort to secure funding, but they failed to see her perspective, which was that female runners were desperate for a device made specifically for them. "I was talking about sports and running, and everything I said was open to question," she says. "One time, I stopped and I said, 'You know what? You're illustrating the gap in the market right now. Everything you just asked about is what Garmin is doing and it's exactly why half the market is sitting on the sidelines. You're proving my point with your questions.'" She continues: "If I had sent my tall, good-looking husband in to talk about the same market specifics, it would have been unquestioned."

Furthermore, when Kellond did find an investor willing to listen, she ran into another problem. “We got a lot of 'Let me show it to my wife and see what she thinks,’” she says. “I don't want an investor who is going to gut-check everything with his wife.” In the end, she turned to Kickstarter, and more than $400,000 later, Bia Sports is in business.

Although it happens relatively infrequently, overt sexism surfaces, too. "I think the concern [from VCs] is that [the women] are going to get pregnant and go home with their families. That's usually what we hear," Greene says. "I really don't think there's a lot of 'The little lady can't do that,' but I do think that there remains genuine concern that 'If I invest this much money in you, how do I know you're going to be around?'"



There’s no single, easy answer, but rather a few parts. The first is awareness. Male VCs can’t see the world from a woman's perspective but the simple knowledge that they don't is the first step in overcoming unintended bias. This comes from conversations, stories like this one and many others, and other, more unusual circumstances. "I want to know who the VCs are who have daughters. They look at the world with a different lens," Nemessanyi says.

Another step is an increase in the number of female VCs. According to the Center for Venture Research, 12 percent of angel investors in the United States were women in 2011. (In fact, more diversity is needed across the board. The same study found minorities made up only four percent of VCs.) A different report concluded that there were only two women on the 2011 Midas List and that the staff of the average venture firm on the list was eight percent women.

“They look at me and I get the sense that they don't know what to do with me.”

But it's a difficult road. Just as VCs tend to fund their own, they hire people who look like them as well. After selling, Touby has been trying to find a fund to work for, but it's proving to be a challenge even for the experienced and successful businesswoman. "I'm up against the top guys in America who want to do this. Firms have to really bend over backwards to let me in. I don't look like them. I'm not a banker. I don't have the same background. I don't have the same orientation. I have different life experiences than they do. They look at me and I get the sense that they don't know what to do with me," she says.

Female angel investors are part of the answer. Natalia Oberti Noguera founded the Pipeline Fellowship for this exact reason. The six-month bootcamp, currently offered in New York City, Boston, San Francisco, and Washington D.C., teaches participants to evaluate companies and founders. At the end of the program, each woman commits to investing $5,000 in a women-led for-profit social venture.

Finally, women founders need both male and female champions. 37 Angels, Joanne Wilson, Ben Horowitz (who uses the female pronoun in blog posts), "The Lean Startup" author Eric Ries, and Dave McClure are some examples. "In some ways, I would say that Dave McClure having that conversation has pushed the envelope. It's not just women talking about it. Getting more guys talking about it is helping make the business case more obvious. It's not just gender and feminism," Oberti Noguera says. Minshew says interest in The Muse picked up when Cathie Black signed on as an angel. The former chairman of Hearst Magazines started urging angels and other investors to take a look. It wasn't too long before the founders had their $1.2 million.

Money talks

Money talks


The biggest reason for investing in women-founded companies is opportunity. “There are definitely a lot [of companies] to choose from,” says McClure, whose portfolio includes roughly 20 percent women-founded companies. Ramos found more than 125 companies in the high-tech sector with women co-founders or officers that have IPO'd or had $50 million-plus exits in the past decade.

The change will come slowly, but it will come eventually. What really matters is success. And success means money: big rounds raise, big exits, big IPOs. There have been a few, but it’s not enough. “At the end of the day, there are so few women who pull it off that every single one is an exception,” Nemessanyi says.

That moment could be coming in the near future. More and more female-founded companies find success every year. After months of trying, Minshew raised a round. The tipping point? Growth and growing expectations. The Muse became something the VCs couldn't ignore, no matter who was heading the company. For a venture firm, the only thing worse than making a bad deal is missing out on the next big opportunity. "It's harder to condescend to three million people than 70,000," says Minshew. The strength of the masses can help the female founders of the future.

Illustrations by Ed Nacional