Small business funding for women — what you need to know

One of the most common questions we get from female entrepreneurs is how to get funding for a business.

Well, we’ve all heard of the funding gap — where women starting or growing their businesses often receive less financial support than men.

This is despite women accounting for 43% of entrepreneurs worldwide — with developed nations, such as the US and UK, being the world’s most start-up friendly countries.

According to UBS, an investment bank, female-led businesses receive only 7% of global seed funding.

The figure falls to 5% for Series A, 3% for Series B and 2% for Series C+.

This in some way tallies with UK government statistics which show that the proportion of businesses transitioning from start-up to established (defined as operating for >3.5 years) was only 4.1% for female-led businesses compared with 8.9% run by men (a success rate >2x higher).

That would suggest that while women start businesses, sustaining them proves more of a challenge.

Lack of funding, of course, is not the only reason for this discrepancy. Women often bear primary care responsibilities for children and ageing parents, for example. Nevertheless, funding is a problem. Recent UK research shows that 86% of women said they had trouble accessing finance to grow their business. The figure for men is lower, at 76%.

So what can women do?

First, they must get into the entrepreneur mindset and understand the perspective of the investor.

Investors aren’t running charities. They want to make a profit — either with their own money (if they’re angel investors) or their clients’ (if they’re venture capitalists).

So if you want to raise funding, it’s absolutely critical you can articulate your business proposition effectively and persuasively. And that you can demonstrate your ability to run your small business successfully.

Here’s the bottom line: When an investor is thinking of committing, they want to know — Should I trust this person with my money? Could their business idea turn my £1 into say, £10? 

A good way to think about it is to consider yourself facing a Shark Tank or Dragon’s Den investor panel. Here are the types of questions they would want compelling answers to:

1.    How much growth do you expect and over what time period?

2.    Where will it come from?

3.    Who is your target customer?

4.    Explain how you’re going to turn a profit?

People often get stuck on the last question but any serious investor will expect a crisp explanation of your financial model.

Let’s take the example of a consumer products business. Here’s what a business owner should be able to explain:

·      What level they can price at and why

·      Their variable unit costs and profit per sale

·      Their fixed costs and breakeven point

·      Their sales goal, why it’s achievable and the profit that will result

Accounting and finance don’t come easily to many people but it’s vital entrepreneurs can deliver clear answers to financial questions.

That’s the more clinical aspect of raising money. But personal qualities matter too.

Investors aren’t looking for a robot. They’ll want to know they have the right person to run the company and deliver on their investment.

There are two characteristics in particular they’ll look for:

·      Experience — even for someone who’s failed (provided they’ve learned from it).

·      Individual qualities — running a business isn’t easy. It requires relentless commitment, drive and adaptability. Investors will want to know that the person they’re dealing with is willing to do what it takes.

And then there are the psychological factors.

The data show that women generally aren’t comfortable talking about money. Women reportedly find it harder to talk about money than religion, politics or death. The reason is because they feel judged.

This has become known as the financial ‘confidence gap’.

Female entrepreneurs who struggle with this may benefit from practising their pitch with a mentor. Not friends or family (because of the risk of bias) but someone who can offer an objective opinion and, hopefully, some good advice.

And when it comes to asking for money, it’s vital to shoot high and ask for the full amount you need.

Anecdotally men find it easier to be more ambitious than women. But if you don’t raise enough money to reach your next growth milestones, you’ll disappoint your backers and your business might fail.

Finally, let’s not forget that investors have biases too.

The social identity theory is one. This suggests that people unconsciously categorise themselves and others into groups. These groups form part of our identity and influence how we behave.

We tend to favour the groups we belong to (in-groups) and perceive people outside our groups (out-groups) less favourably.

Given investors are predominantly male (men hold 78% of senior positions in UK VCs), this presents another hurdle women need to overcome.

A good way to compensate is to consider the preconceptions an investor may have about you as a female entrepreneur and work out how to position yourself as someone that investor would want to back.

It will take time for the funding gap to close and deliver the right small business funding for women. In the meantime, women can benefit from self belief and a systematic approach.