While the U.S. has about 12.3 million female-owned businesses that generate approximately $1.8 trillion in revenue annually, when it comes to business proposals getting seed money, the major share of the funds still go to men. Meanwhile, women entrepreneurs often find themselves left in the cold and find themselves having to look for alternative sources of funding.
To help bridge that divide, as well as assist other groups of all ages, life stages, ethnicities and backgrounds, according to Peanut, it created StartHER, a microfund to help startups. Peanut, which also operates a social networking app for women, is targeting entrepreneurs who lack family and friends who can pull out their checkbooks.
“The assumption that founders should have networks able to invest in their businesses creates an unfair starting line for most groups. If we don’t remove barriers to that initial funding by providing access to capital, how can we ever hope to see a changing founder profile further through the fundraising funnel?” said Peanut CEO and investment committee member Michelle Kennedy, in a prepared statement. “Peanut’s StartHER fund opens the door to founders looking for that early funding.”
StartHER is launching with $300,000 and expects to award between three and four investments this year. Peanut will not have any equity in the businesses in which it invests, according to the company. Among the goals of StartHER is to find “pre-seed” businesses striving for a positive impacts on society, healthcare or the environment. Individual grants will range between $25,000 and $50,000.
“As a member of the Female Founders Fund, I’m excited to be a part of StartHER’s investment committee to help these entrepreneurs, who have not been adequately recognized, grow their networks in the venture capital community,” noted Anu Duggal, founding partner of the fund, in a statement.
Currently, women entrepreneurs receive only about 7 percent of venture capital funding for business ideas, despite the fact that as a whole, women entrepreneurs are more successful than men, as discussed in the book Female Entrepreneurs: the Secrets of Their Success. Approximately 17 percent of venture capital funding went to companies with at least one founder who is female, according to Crunchbase. When it comes to all-women businesses, though, only 2 percent were awarded funding. For women of color, the statistics are even worse.
The COVID-19 pandemic also hit women entrepreneurs on multiple fronts. According to Crunchbase data, between 2019 and 2020, there was a 27 percent decrease worldwide in funding for businesses started by women. When schools and childcare centers closed and education went virtual starting in 2019, many women had to put business plans - and their businesses - on hold to take care of their families. The elimination of in-person networking opportunities also put women at a disadvantage.
The reasons women entrepreneurs are awarded smaller investment loans and grants than men vary; often they ask for less money, because they are more cautious when it comes to estimating the value of their businesses. In some cases, women’s proposals for companies are less conventional, making traditional investors wary. “Women entrepreneurs often don’t reflect the image financial backers have for this group of business leaders,” according to the aforementioned book. “...They (women) just don’t conform to the norm of the young hoodied-male geek.”
Not to mention that most of those in charge of the dollars at venture capital firms are male; only 13 percent of decision-makers are women. Some women also reported experiencing sexism during the application process or said interviewers focused more on their personal lives than work plans.
But with the post-COVID economy, more women are poised to launch new businesses. Companies owned by women are poised to stimulate the economy and can – if only investors would take this reality into consideration.
The StartHER fund is currently accepting applications; the committee is scheduled to meet every six months to review proposals. Besides seed money, fund recipients also will receive support from committee members and their networks.
Criteria for StartHER applications also will evolve. “Moving forward, we’ll be considering other factors such as deal flow to help inform how we invest and the companies we choose to invest in,” Kennedy explained. “We’re heavily focused on making the right investments that will have the most impact versus simply making returns.”
Image credit: Mateus Campos Felipe/Unsplash