Women founders received only 2 percent of venture capital funding in the United States last year, according to a report by Pitchbook. It’s a gender gap that has long prevailed in VC circles—and one that’s very difficult to defy.
However, here are three Triangle women who did—and the lessons they learned about the challenges.
Tiny Earth Toys, a subscription sustainable toy startup based in Durham, is headed by former Teamworks VP Rachael Classi, who raised $1.5 million last year from Durham’s Bull City Venture Partners.
Daughter-and-mother duo Rebecca and Helen Egger founded Little Otter Health in San Francisco (Rebecca is the CEO) two years ago and raised a total of $26 million before bringing the children’s mental health platform home to Durham this year, where Rebecca grew up.
And then there’s Liza Rodewald of Pinehurst-based Instant Teams, who raised a successful Series A round of $13 million led by Tiger Global for the military-affiliated labor marketplace company. [Editor’s Note: we’ve previously written about Tiny Earth Toys, Little Otter Health and Instant Teams.]
So what’s their secret?
Classi said she’d be lying if she said that when she started fundraising efforts she didn’t consider how being a woman could impact her conversations with investors and just the overall ease of getting in the same room as them in the first place.
When you’re building a company, everything revolves around who you know, Classi said. And women founders still find these networks more challenging to access than their male counterparts.
Classi’s fundraising round was a unique story: she had just left Durham-based sports management software startup Teamworks and had a front-row seat to its successful Series C fundraising. She also had that Teamworks network and credibility to rely on when she entered conversations with investors.
There were still concerns, though. Working in the toy industry, designing children’s products, Classi knew she needed to especially focus on the business fundamentals and secure a solid customer retention rate to show the majority of male investors that the business opportunity was there. Explaining the value proposition without these metrics could be a losing battle if the investors personally didn’t feel a connection to the problem that Tiny Earth Toys is solving.
“The value proposition of what we’re working on gets misunderstood a lot,” Classi said. “I think it’s so disappointing when there are fantastic businesses that are focused on real problems and if the person across the table personally can’t relate to it, sometimes it’s just missed.”
Ever since Rodewald began in tech, she had a taste of what it was like to be a woman in the traditionally man’s world of startups and software engineering. In her first job, she was the only woman in the entire company. While many male colleagues were supportive, some would expect her to perform secretarial jobs just because she was the only woman there. She learned early on she needed to be overly assertive just to ensure her voice was heard.
When she went about fundraising for Instant Teams, she knew she had several things going against her. She was living in Hawaii because that’s where her husband was deployed in the military, so she was far away from most investors. She didn’t have many family and friends she could lean on financially for early funding, so she had to build a network through accelerators like The Founder Institute.
Even at pitch competitions, Rodewald noticed there were key differences in the types of questions men and women founders would have to answer.
“I think that part of the bias that people talk about is true,” Rodewald said. “Most of the questions they ask female founders are, ‘How can it go wrong?’ where the bias towards males is like, ‘How big can this get?’”
Egger said she had a variety of privileges that lent her an upper hand in raising capital. She’s a white woman from an upper-class, educated family. Her own dad was a former venture capitalist. She built a name for herself in recognized institutions like Palantir Technologies (co-founded by Peter Thiel) and the Chan Zuckerberg Initiative (backed by the wealth of Facebook CEO Mark Zuckerberg). And still, she felt constant discrimination based on her sex while looking for funding, she said.
She heard an investor say straight up that they didn’t see the appeal in Little Otter, but that their wives did. Egger grew increasingly frustrated by how investors treated her mother, a renowned child psychiatrist who ran Duke and NYU’s child psychiatry departments, as naive. One investor, after rejecting Little Otter’s proposal, told Egger that her mother seemed like a “nice lady.”
“Investors are pattern-matchers,” Egger said. “And who do they see running successful companies? It’s other white men. And when they don’t see that, it’s hard for them to pattern-match. Even if they’re not doing it on purpose, there’s a lot of assumptions and other things that go along with it. Thinking, can you be tough enough? Can you scale? Can you handle these types of things?”
The ironic thing is, Egger points out, women-led companies tend to perform better, with stronger margins and outcomes, according to a McKinsey report.
Still, when it came time for Little Otter to seek out funding, Egger knew she’d have to put in an incredible amount of work. She did over 90 meetings in two weeks for the first round of seed funding.
As so many were lauding the tech startup market as “super hot,” even going as far as to say you can just reach out your hand and get money, Egger became frustrated because she knew this wasn’t the case for everyone.
“That always felt very dismissive of the people who still had to work to make it happen,” Egger said. “Even though I was able to raise this money, and I was very, very lucky, it was not easy even with a really hot market. And for many others, it’s a lot harder.”
All three women encourage other women to work on building their network first before raising money. As Classi said, “fundraise when you’re not fundraising.” Ask for introductions to others from everyone you connect with. Join accelerators with networks larger than your own.
“The warm intro is how you raise money,” Rodewald said. “You can cold pitch all day long, but the warm intro is really what you need in order to move the needle—and you only get that by building a network.”
And when pitching, lead with the numbers so that investors have less of an opportunity to underestimate the problem you’re solving.
To truly change the statistics, though, ultimately more women need to be at the table in venture capital.
“The more we see that role on the other side of the table,” Classi said, “the more we’re going to have a balanced perspective about the evaluation of opportunities.”
Even while in Classi’s case, she found male investors who believed in the value proposition of Tiny Earth Toys, she understands that might not be the norm for other women pitching to an all-male or male-dominated audience.
“I really believe there are phenomenal male investors who see these opportunities, who invest in them, who support founders,” Classi said. “I can’t say enough good things about my investors. But I think it’s going to do a lot to have more diversity of perspective on the other side of the table to help assess and not miss these opportunities.”