Fast Company – Why Can’t Female Tech Founders Get Funding?

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This article was written by Ciara Byrne and originally published on the Fast Company website on July 16th, 2013. 

Village Capital is a startup accelerator with an unusual way of allocating capital. The entrepreneurs in each cohort select two companies from the group to receive $50,000 investments. Its founders say the biggest winners will be female technology entrepreneurs.

Ross Baird founded the Village Capital startup accelerator program four years ago to assist mission-driven companies tackling major social problems, who might not otherwise get access to capital. At the end of each program, the 15 or so companies in a cohort select two of their peers to receive a $50,000 investment.

Now he has a problem. Roughly half of the 250 Village Capital alumni companies have a female cofounder, but those companies are 50% less likely to get follow-on funding than those with all-male founding teams. This is in spite of the fact that female-led Village Capital companies are 15% more likely to be profitable and 78% more likely to be selected by their peers for investment.

“The process favors entrepreneurs who are more substantive and less flashy,” says Baird. “We find that women tend to under-promise, over-deliver, hit milestones but are maybe not as free to brag about themselves up on stage. Men, and I say this fully aware of being one, will oversell anything. Women undersell and this is a problem particularly in fundraising across our alumni. The shift in power dynamic in peer selection corrects for some of that. One of our female entrepreneurs has said that she often felt like she didn’t get a fair shake in the traditional investment process in that she wasn’t really given the time to demonstrate her value, to demonstrate what she was creating.”

Baird thinks that the power imbalance between investors and founders is a bad thing for everyone. “Many startups are trying to figure out what investors will invest in. There is an overemphasis on ‘What do investors like?’ and less emphasis on ‘What value can we provide to the world?’ Raising money should not be your primary goal as a startup. We say that if you build a company which solves a major problem and people are willing to pay you to get the problem solved then investment will come. Investment is the result of achieving your goals. It shouldn’t be the goal itself.”

As a result, Village Capital’s program concentrates on customer validation, acquisition, and revenue rather than pitching to investors. On top of the peer-to-peer review process, this emphasis on customers may favor women. “’We will get as many users as possible and we will figure out how to monetize them later’ is not in the long term a successful business strategy. A lot of what we do in the program is distinguishing between customers and users. In the peer-to-peer process, customer acquisition rather than user acquisition is rewarded,” says Baird.

That peer-to-peer review process involves three open peer ranking sessions where each company ranks the others based on team, product, customer, financials, scale, and return of capital. The final session results in the selection of the teams which get an investment. Baird insists that that process is more productive for everyone than the traditional investment model.

“In the prize mentality or the ‘get the investment’ mentality in a startup competition, two people get funding, 15 people get skewered and ripped apart by people trying to make themselves look good, and the non-winners just don’t get anything,” explains Baird. “In the peer-reviewed process everyone gets something out of it. Entrepreneurs when they give feedback to each other are very thoughtful because they care a lot about each other and if they are unfair to each other it comes back to them. The process is productive even for the non-winners.” Could this emphasis on collaboration, rather than competitive pitching, be the key to the success of female entrepreneurs in the Village Capital program?

When I ask Baird to choose his favorite Village Capital graduate he doesn’t hesitate. “Kickboard. Peer selected from the first program. The founder is a woman who is a teacher and coder and she has a data management process which allows teachers to manage student performance data so they can improve teaching. She didn’t set out to be an entrepreneur. She built this as a teacher to solve problems for other teachers.”

Kickboard founder Jen Medbery tried to get the company off the ground for a year before finding Village Capital. Four years later Kickboard has raised $2 million in mainstream capital. “To see her not raising funds in the traditional angel investment world but being the overwhelming favorite of her peers, getting her first investment peer selected and becoming incredibly successful in solving major problems in U.S. education is a story I am really excited about,” says Baird.

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Read the article in Fast Company here.

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