April 11, 2017
Have you noticed that, despite the almost daily reminders that women entrepreneurs are underfunded through articles and blog posts, venture investors of both genders seem to distance themselves from these conversations? This is happening primarily because the initiators of such debates can discuss the gender issue at great length but rarely turn the conversation into a reasonable business discussion. We are so focused on harping about what the venture capital industry does not do for women that we completely forget about the business narrative. We often appeal to gender solidarity when talking to female investors, or to gender tolerance when pitching male VCs, which sounds more like fundraising for charity than investing in a business with potential. The question is, why do we give this conversation a begging tone instead of highlighting the real value of women as inventors, experts, and consumers?
We shouldn’t forget that all venture investors have a fiduciary duty to their limited partners, and no matter how strong we want to support women emotionally, business incentive dominates our decision making. So, let’s talk more about business when promoting women entrepreneurs. I’ve interviewed many venture capitalists of all genders about their approach to funding women, and I have uncovered three main investment strategies that entrepreneurs, journalists, and advocates for women should keep in mind when addressing the gender issue in the venture capital industry.
1. Femtech investment vertical
The term ‘Femtech’ had been used to mean several different things over the past couple of years, until it became an investment term used to describe tech products and services tailored for women. Given that women control $39.6 trillion (1/3 of the world’s wealth), not recognizing this huge market would be quite an oversight. And women make decisions differently than men do, and they have gender-specific needs. Femtech is an emerging investment focus that’s gaining momentum across the world today and, like many other high-potential markets, it has built a community of startups, investors, and experts, who will gather at the Femtech Summit in September this year.
Susan Hobbs, Partner at CrunchFund, is a big supporter of femtech: “I absolutely believe in femtech as an investment vertical,” she says. “I know without hesitation that women are the greatest emerging market and the world’s most powerful consumers and have been chronically under-served. When products are made with women in mind, they are tapping into the gestalt of spenders that have a profound multiplier effect.
“Creating a true femtech product goes beyond taking an existing product and changing the color, or shooting ads in soft focus with lyrical music. Femtech develops products and solutions with women’s needs specifically in mind — a great example of this are the products from Bellabeat. Though with time, the term can run the risk of fatigue, a similar conundrum that exists for all trendy descriptors (e.g. unicorn), it aptly identifies those companies who create products with the XX chromosome as the target audience, and we need it now.”
2. Women as consumers
Many venture capitalists who recognize the power of women’s purchasing power are opting to invest in products and services driven by female usage. Women may not necessarily be the ultimate consumers of these inventions, but they can make purchases on behalf of other family members — kids or elderly people — or be consulted before a purchase is made. For example, many married couples have a “spousal approval” agreement for certain purchases. Much of commerce, health & well-being, edtech, social & mobile is driven by female usage or influence.
Rivet Ventures says it “invest[s] in women-led markets where female consumption, usage and purchasing are crucial to company growth.” One of their most noticeable investments is a next generation vitamin called Ritual, which targets the 1 in 2 women in the U.S. who take vitamins daily. “We invest in both men and women, but when we started the Fund we believed that one of the largest consumer segments — women — had often been an afterthought for many companies and investors,” says Shadi Mehrain, Partner of Rivet Ventures. “In our opinion, companies deliberately targeting the female market will be better positioned to capture this consumer ‘dark matter’ than companies acquiring female customers haphazardly. We continue to see many opportunities in the market which will drive more VCs to pay attention, and having female investors around the table to bring a unique and valuable perspective, especially for this group of startups.”
3. Made by women
The third main strategy of funding women is to deliberately invest in high-potential products and services founded by females, even if similar startups already exist in the market that are founded by men. In other words, what if we had another Uber led by a woman? How would it be different? China’s DiDi ride sharing service has a woman at its helm: Liu Qing was a COO and now a President of this transportation giant, which provides services to close to 400 million users across over 400 cities in China.
Many venture funds and angel investors are currently trying to help women access existing market niches that are occupied by companies led by men. “When more female-founded companies have more and more successes, regardless of the name and title of what they are building, then more investors will be directing their capital towards more of them,” asserted Joanne Wilson, a prominent New York-based angel investor who backed a ride service for kids, Hopskipdrive, among many other women- founded and women-focused startups.
Another piece of evidence that more attention is being devoted to women entrepreneurs: UBS Group AG’s American wealth management unit raised $110 million for a U.S. venture capital fund that will invest in companies in the health, education and environmental areas that are led by or co-managed by women. The fund is managed by Rethink Impact, a venture capital firm that invests in companies with a technological bent that was founded by Jenny Abramson.
Of course, I couldn’t help but ask male venture capitalists about their investment strategies when it comes to women founders and consumers. I heard the following from Josh Makower, who is a partner at NEA (New Enterprise Associates) and will be a keynote speaker at Femtech Summit: “I’m glad that the investment community is waking up to what was always clear to me and our firm: we need more businesses run by women, more businesses focused on women’s needs and more investors that are women.” New Enterprise Associates is one of the very few venture capital funds that had been investing in femtech startups long before we started crying over gender disparity in venture capital.
Breaking through the many upsetting messages about women being underfunded, I’m bringing you good news. Ladies, we are getting there! We just need to speak the same language with our investors, who are focusing on the trillions of dollars business value women bring to the table.