10 / 11 / 2020

Investing in Female Founders (Or Why Wouldn’t You?)

In 1996’s The Associate, entrepreneur Whoopi Goldberg is forced to create a fictitious white male partner to have her business taken seriously. Unfortunately, 24 years later, women still face an uphill battle getting funded.

Carey Smith | Founding Contrarian

It’s well known there’s a big funding disparity between female- and male-founded companies. A recent report showed funding of female founders in the third quarter of 2020 actually reached its lowest point since 2017. But at Unorthodox Ventures we’re working to narrow the gap.

Investing in companies with female founders doesn’t require any extra or deliberate effort on our part. All it takes is sticking to our original plan. From the beginning, we’ve chosen to invest in people who are grounded, with solid, practical ideas; people who are committed to advancing worthwhile products — and whose primary focus is not in striking it rich, though they’d be happy to. What we’ve learned is that these people are very likely to be women. Of the companies we’ve invested in, 70 percent have women among their founders and more than 20 percent have only female founders. By contrast, a Crunchbase study of all VC investment shows less than 3 percent goes to companies with only female founders.

Awkward Essentials is one of our female-founded partner companies. Frances Tang immediately impressed us with her dedication, pragmatic approach and openness about a subject that every woman is familiar with but few are comfortable discussing: after-sex cleanup. Tang is not the least bit embarrassed talking about her invention, dripstick®. This soft, medical-grade sponge quickly removes excess fluids from the vagina and eliminates the need for wads of toilet paper. She credits her family for both her frankness and her entrepreneurial determination: her father is also an entrepreneur as well as her biggest fan.

Tang contacted us after being turned down by a number of VCs. She saw that we had invested in female-founded bidet-maker Tushy and thought we might be a better fit than even female-run investment firms. Lots of research confirms a “gender-confidence gap” — meaning that female entrepreneurs can have a tougher time winning over investors because they’re more likely to be self-effacing. We haven’t witnessed that, maybe because we’re also more focused on the product than the promoter. Nevertheless, what most impressed us about Tang was her fearlessness. She’d already failed at a couple ventures and had come away wiser. And she’d learned from her father that to succeed, at some point you have to throw caution to the wind. That’s why, when a well-known West Coast accelerator urged her to be sure she had a market before ordering in bulk, she went ahead and ordered 100,000 anyway, and ended up selling them all. We look forward to helping her sell millions more.

It’s hard to understand why female entrepreneurs have such difficulty getting funding. One study found that for every dollar raised, female-run startups generated 78 cents in revenue, compared to 31 cents by male-run startups. Basically, all the research out there comes to the same conclusion: female-led startups are a safer bet and yield a better return.

Could it be that investors’ reluctance to fund female founders is yet one more sign that they not only don’t know what they’re doing, but they wouldn’t recognize a product with potential if it hit them in the head? That’s the only explanation that makes sense to me.