In Australia, the number of female-owned enterprises is on the rise. Federal Small Business Minister Bruce Billson says that about 93.3% of women in the country operate small businesses. However, a 2013 study from the Australian Women Chamber of Commerce and Industry found that women entrepreneurs struggle to obtain enough capital for their startups. In fact, more than half of female business owners launched their enterprise with less than $5,000 in capital.
One possible factor that prevents women from securing funding is the lack of female partners in venture capital firms. In the process of selecting an enterprise to support, venture capitalists are often influenced by the natural traits human beings possess of self-selection, pattern recognition and homophily. That is, they are more inclined to communicate to and be comfortable with people who are similar to them in terms of gender, race or other characteristics. In VC firms where males make up the majority, the tendency is to reach out to male entrepreneurs who are like them and invest in their businesses, putting female entrepreneurs at a disadvantage.
In addition to this, investors are less confident to back women-owned enterprises because of the way some female entrepreneurs present their pitches. When presenting, women entrepreneurs tend to frame their venture as a “side hustle,” or an enterprise that they manage single-handedly to augment their income. They may not display the intention of expanding it into a multimillion-dollar company. On the other hand, male entrepreneurs highlight how their businesses can grow worldwide, given enough funding. Authors Erin Kepler and Scott Shane noted in a Small Business Administration report that compared to male business owners, female entrepreneurs have a smaller vision of what their businesses can achieve, which makes investors more hesitant on providing funds.
Aside from this, female entrepreneurs tend to not be specific regarding the amount of money that they need. Instead of confidently stating the amount upfront, women request the capital they will need as “backing” or “support.” Venture capitalists will not have confidence in the investment and this will prompt them to move on to other promising business proposals.
How can women improve their pitch? To win an investor’s approval, you need to know what they are looking for in a business proposal. Here are some tips to get venture capitalists to say ‘yes’ to investing in your business:
1. Talk about your business from the investor’s point of view – Venture capitalists think about business, and how their investment will generate returns. When they look at a business proposal, they judge it based on its market potential. This means they will evaluate how your business will generate demand. Will your product or service sell? Emily Weiss, a 29-year-old blogger, considered this perspective when she was pitching her skincare line to venture capitalists. She explained that her blog, which reaches 8.5 million readers monthly, provides a wide market for her product and how her skincare line can address consumer demands in the cosmetics market.
2. Be confident about your business idea – To draw the attention of venture capitalists to your pitch, you need to be confident and assertive throughout your presentation. Demonstrate to them how your business can be a game-changer in the industry, as this will help your proposal stand out and persuade your listeners. As mentioned above, you also need to be upfront about the amount of funding needed, because this will put value on your business and help ensure its growth.
3. Build relationships with investors – The process of investing inherently involves trust, especially on the part of venture capitalists. To gain their trust, you need to establish strong rapport with them before raising funds for your enterprise. Venture capitalists essentially see entrepreneurs as a “dot” in an x-y axis when meeting them for the first time. This means investors do not know yet about the potential of the business owner. As time goes by, however, VCs will see a pattern or a “line” in the performance of the entrepreneur, which is crucial to winning their trust. The pattern and consistency in a business owner’s performance will influence a VC’s decision to invest.
4. Don’t take no for an answer – When an investor says “no” to your proposal, you should never give up in presenting your pitch to other VCs. Rejection is part of the process when it comes to raising funding for your business. Ask for feedback from VCs to determine which areas of your pitch require improvement. You may need to refine your vision and your market, and prove to them that your business is worth the investment. Aside from this, you can also learn from and talk to entrepreneurs that were able to secure funding successfully, and apply the lessons that they have learned in presenting their proposal.
5. Understand the financials – know your numbers!
Raising capital for your enterprise requires hard work, but with the right strategy backing a disruptive business idea, you can get venture capitalists to say ‘yes’ to your vision and yes to invest.