Funding for female founders: Five viable alternatives to venture capital (VC)

Let's face it: becoming a startup founder is challenging and scary. It often means taking a tremendous personal risk while also signing up for long hours and hard work – and while this path is difficult for anyone, female-founded companies typically have additional hurdles to clear before their businesses can thrive.

On paper, the prospects look great for female entrepreneurs. According to UENI's 2020 Report, 32.37% of UK businesses are owned by women, highlighting a remarkable shift from four years earlier, when just 17% of founders were women. While these numbers are impressive, they don't tell the full story. Women entrepreneurs continually face a host of challenges, the biggest of them all being access to venture capital and funding.

Despite the fact that UK companies attracted more venture capital than those in any other European nation in 2019, only 1% of it went to all-female founding teams. Further research reveals that being a man is the "primary determining factor" in obtaining funding. Not academic qualifications. Not skill, and not even experience.

These disparities are huge and even more alarming when you take into account that women-led businesses are growing much faster than all businesses. From 2007 to 2018, female-led businesses grew 58% in terms of the number of firms and 46% in terms of revenue. While these numbers provide a glimmer of hope for female founders, there is still a lot to be done for equality to be achieved in the venture capital funding world. 

Table of contents

• How can female entrepreneurs overcome funding hurdles?
• Venture funding alternatives for women-led startups
• Key takeaways on funding female-led startups

How can female entrepreneurs overcome funding hurdles?

Judging by the statistics, it's clear that female-led startups face various unique funding challenges. The question is, what can be done to avert this trend?

For starters, women, like their male counterparts, need to be educated on exactly what it takes to adequately launch and scale a business. This way, they'll be in a strong position to communicate their value to potential lenders or investors.

Start by carving out a clear roadmap of your entrepreneurial journey. Have the end goal in mind, and make sure you fully understand the financial repercussions of the decision you're about to make. Taking the plunge because others are doing the same will probably only result in one thing: failure. So take the time to assess your choices, bearing in mind that the choices you make at the start will dictate your path and, by extension, your destination. 

Don't partner with a venture capital (VC) firm just because they're popular. Rather, take the time to research potential VC firms or investors. Dig as deep as you possibly can. Once you come up with a list of comparable VC firms, perform a toe-to-toe comparison of their business models. Establish how much runway you need for your startup to take off and the associated operating and scaling costs. The goal here is to sufficiently communicate the value to any prospective investor, so be sure to understand your unit economics in detail.

Secondly, women entrepreneurs need to remember that business acumen is gender-neutral. While it's true that gender bias exists in the VC world, you need not be drawn into the constant battle to prove seriousness. In other words, build confidence and overcome self-negative talk.

Don't let negative comments prevent you from seeking funding. First, believe you can succeed, back that up with a solid battle-tested plan, and then execute. Create a powerful presentation, meticulously highlighting your business plan, financial model, and key milestones. Polish it to perfection. Don't underestimate the importance of a solid understanding of the financials. Being able to article your key financial metrics such as CAC (customer acquisition cost), CTLV, churn, revenue, gross margin, etc., is critical (for anyone that has watched Shark Tank, we know this is true). 

Lastly, female entrepreneurs need to see beyond the confines of VC funding. Yes, VC funding holds immense promise in terms of sustainability and value, but it's not the only option—and honestly not the best either. Besides, VC funding opportunities are hard to come by. Alternatives to VC funding abound, and it's up to you as the female founder to explore the one that best fits your female-led business. Below, we explore these alternatives in depth. 

Venture funding alternatives for women-led startups

Oddly, most VCs only work with warm intros, and you can spend a lot of time trying to reach out cold. Even statistics tell of this sad tale. Thankfully, there are other avenues a female founder can explore to set up minority-led startups for long-term profitability.

1. Traditional bank loans

When it comes to VC alternatives, a traditional British business bank loan is often the first thing most female founders think of.

Of course, it's a viable option, mainly because bank loans have lower interest rates than most financing options. However, they're not always easy to obtain. Traditional loans require a year or two of financial history, collateral, and a favourable credit rating, all of which most minority-led startups have in short supply.

However, if you're one of those few female founders that can qualify for a loan, or if you have a partner who is both in a position to take out a personal loan and willing to take up the very risks attached to it, traditional funding can be worth it.

2. Crowdsourcing

"Crowdsourcing," or "crowdfunding," as some call it, is the practice of raising startup capital through multiple funders, often via popular websites like Indiegogo, GoFundMe, and Kickstarter. In fact, there's a crowdfunding platform dedicated to supporting women-led businesses to raise money to grow; say hello to iFundWomen.

Crowdsourcing is particularly viable if the business you intend to start will provide a physical product or service that consumers will find valuable. You only need to launch a fundraising campaign, and you're good to go.

Fortunately, setting up a crowdfunding campaign is quite easy. You first set up a profile on a crowdfunding site, describing your startup and its business, as well as the amount of money you're trying to raise. People who are interested in what you're trying to do can contribute to your campaign, typically in exchange for some kind of reward for their donation (a discount once your product gets to the market, control over one of your products or services, or some other perk), or for some form of profit share or equity in your business.

The key to a successful crowdsourcing campaign is to create a compelling story about your product, service, or company as a whole and to offer a meaningful reward for donations. Some women-owned businesses have raised thousands or even millions of euros via crowdfunding campaigns. Amanda Palmer, Hannah Kromminga, and Luisa Dantas are all female entrepreneurs who made mind-blowing sums of money on crowdfunding sites.

And if research by ESMT Berlin is anything to go by, women are more successful at crowdfunding than men. You never know how successful you can be at crowdfunding until you actually try. So go for it!

3. Angel investors

Angel investors are typically high-net-worth individuals who invest in an early-stage startup in exchange for an equity stake or substantial control over key decisions.

If you think angel investors are few and few between, think again. Angel investors have, in the recent past, tripled in number, and this list of the most active angel investors in the UK proves just that. Now more than ever, angel investors are willing to make bets on female-led startups with the hopes of getting sizable returns. Yours could be in line to benefit from this shift in mindset.

Most angel investors particularly care about the following:

• A reasonable valuation with favourable terms (angel investors typically invest at an early stage when risk is highest, so they often ask for a lower valuation to compensate).

• The passion, commitment, and integrity of the female founder.

• The market opportunity being addressed and the potential for the startup to become "the next big thing."

• A well-thought-out business plan and early evidence of traction towards that plan.

That said, be thoughtful in the angel investors you invest time in cultivating a relationship with. Only develop relationships with investors who can bring something of value to your startup (i.e., resources, connections, advice, etc.) besides just monetary investment.

One downside of angel investment is that it's not real institution money. It's personal money that can create unique challenges to securing investment, should more capital be needed in the future or if there are bumps in the road. Typically, as angel investors take the most risk, they look to secure 20-25% of the company for their initial investment. 

4. Loans from friends and family

Female founders may find that they have family and friends who fancy their ideas, believe in their potential, and are willing to help their startups grow and achieve success. These people might be willing to put in their own money to ensure that a promising business idea truly takes off.

However, as with any deal involving friends and family, it's crucial to come up with clear terms before moving forward. Repayment terms tied to cash flow should be well defined, and everything must be put in writing. Keep in mind that the monetary and emotional implications of a deal gone sour can linger for years or even decades, so don't skip this step.

The good thing about loans from friends and family is that the lender loves and cares about the founder — it's not an impersonal transaction. 

5. Alternative investors

In the recent past, many alternative funding platforms have cropped up in an effort to help female founders fulfil their dreams. 

With these platforms, female founders can enjoy:

• Affordable funding: You get to keep 100% of your equity. No personal guarantees, no warrants.

• Quick access to growth capital: Funds get deposited into your bank account within 24 hours. 

• Founder-friendly repayment terms: You only pay back when your customers pay you. 

• Top-ups on the fly: You get additional funding when you need it. 

• Clear, honest fees: There are no hidden fees, and there are no fees for early repayment.

• Huge funding potential: Female founders can get up to $10M in growth capital.

Seriously, that's a lot of money to grow your business. Beyond capital provision, partners like Bloom give you the control you need to scale your growing brand. That means you can benchmark your competitors, understand your cash flow, and predict the future as you go. In other words, you get a better picture of your business to inform future investment decisions. 

Compared to other options on this list, this is arguably the most well-balanced funding option there is for women entrepreneurs. 

Key takeaways on funding female-led startups

We cannot downplay the fact that disparities exist in the VC funding world. However, the tide is slowly but steadily turning in favour of female founders. The data shows that women-led startups, on average, have better ROI than their male-led counterparts. Whether or not VC firms will give female founders an equal seat at the table remains to be seen. But one thing is for sure: women-led startups are taking over the world, and there's nothing anyone can do about it. 

Are you looking to grow your startup faster, better, and more strategically? Partner with Bloom, now. With us, you only pay for what you use, when you use it. Compared to other funders, you’ll only pay for the days you actually use our capital. Please feel free to reach out to us today to see if we're the right fit for your business.