Steps to fundraising success for female founders

With a recognised gender investment gap globally and in New Zealand, how do female founders set themselves up for success when pitching for capital?

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“I wish this wasn’t a question because I don't want there to be differences, but the data suggests there is and that means a different approach is required,” says Sarah Park, co-founder and managing partner of Even Capital, New Zealand’s only female-focused VC fund.

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Data released in July from the Gender Investment Gap New Zealand report showed that for every 100 startups funded by taxpayers through the government-backed New Zealand Capital Growth Fund, just six had all-female founders, while 72 had all male-founders. 

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Private-sector investment network Enterprise Angels also contributed its data to the research, which showed that for every 100 startups it invested in, 76 had all-male founders, 11 had all-female founders, and 13 were mixed-gender (often couples).

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That research was personally funded in part by Global Women head Theresa Gattung and entrepreneur Jenny Rudd who realised there was no local data that put a gender lens on investment, and that gathering the data was the first step in closing the gender investment gap. 

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Rudd says the onus is on VC firms to improve the diversity of their investments “or likely face questions from their institutional investors about why they’re only investing in the lowest performing group”. 

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In the meantime, there are steps female founders can take to give themselves the best chance of success when pitching for investment.

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“The first step for any founder, and it’s certainly true for women, is to work out if your business is venture back-able and do you want it to be?” says Rudd. 

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Most funds have responsibilities to their investors to return as much as possible on investments, so their mandate may not align with your business goals, particularly if your business is purpose driven.

“VCs play a hugely important role in the investment ecosystem but you must make sure that you understand what their responsibilities are to their LPs [limited partners].”

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If VC funding isn’t suited to your business, Rudd says there are other routes to try, such as angel investments, family offices, crowdfunding or platforms like Tractor Ventures offering debt for revenue-generating startups. 

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Rudd says it is also essential that female founders undertake thorough due diligence on different funds as they prepare to pitch to assess the diversity of their portfolio and the number of women in their decision-making team.

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“Check their website and have a look at how many of the investments they’ve made in the last year, or the last five years, have been in businesses with female founders. I’d then give a couple of those founders a call, and ask who they recommend you speak to.”

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“Don't just read the literature that a VC firm puts out because what they're saying may be different to what they're doing.”

Pitch ready

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Icehouse Ventures’ lead of the Arc Angels female-focused fund, Bex Gidall, says women should also be ready to respond positively to more negative questions in pitch meetings. 

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A 2017 study published in Harvard Business Review found VC firms typically asked men ‘promotion’ questions about potential gains for the business, while women were typically asked ‘prevention’ questions about the potential for loss or failure.

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Instead of being pushed into a defensive mode, Gidall says it’s important to answer optimistically. “Flip it and answer a prevention question with a promotion. Talk about the opportunities and the positive strategies you have for the challenges raised in the question.”

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While a common narrative about female founders is that they’re risk averse, Gidall believes they are more “risk aware”, meaning they often pitch a realistic picture rather than visionary moonshots.

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With VCs used to wrestling down from a very optimistic start, a more modest starting point leaves female founders less room to negotiate down, she says.

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“Be an advocate for your company and pitch that ultimate image of what the future will look like. That will help you get past the initial screening,” she says.

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Funds like Arc Angels and Even Capital are part of the growing ecosystem of female- focused VCs and funds, which Park says are essential to shifting the gender investment gap, and helping female founders succeed in the meantime.

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One of the simplest things female founders can do is seek out other female founders for advice, knowledge sharing and support. “Where we've seen female founders who have been successful at getting investment introducing new female founders to those investors, they've had good experiences and it really works well,” she says.

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Though pitching is focused on funding, Park says it’s important female founders are also clear about the role they expect to have once an investor is on board, as there can be a tendency to overlook female founders in governance in favour of their male co-founders. 

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“It’s not just about the dollars; it’s about who you have around the table with you.”

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New Zealand Growth Capital Partners has a list of resources for female founders here.

Piquing interest

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One of Even Capital’s portfolio companies is Woolchemy, a high-growth manufacturer of wool-based hygiene products, which raised $1.5 million in a seed round in early 2003 along with a grant from MPI’s Sustainable Food and Fibre Futures Fund, and is now undertaking a second raise.  

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Co-founder Derelee Potroz-Smith says one of the biggest challenges she found when pitching to predominantly male potential investors was piquing their interest in a manufacturing business doing something new.

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Investors like to invest in things that are similar to what they like or they have knowledge about, she says. 

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“New Zealand doesn’t have hygiene industry knowledge, which meant VCs in New Zealand couldn’t understand the concept. Talking about nappies, feminine hygiene and incontinence is not a topic that excites investors unless you focus on the massive problem at stake. We weren’t targeting the right investors at the beginning.”

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Compared to male CEO colleagues, Potroz-Smith says the questions she faced were more negative. “ I often felt I was held to a different standard than my male counterparts. Whereas male founders might be questioned about their company's growth strategy or profitability, I was sometimes questioned about how I’m going to execute on our vision and how to deal with technical challenges. No early-stage company has all the answers.”

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“For many entrepreneurs, you have five minutes to convince an investor and customers of your idea. For women, I think that’s more like a minute and first impressions are in the first 30 seconds,” says Potroz-Smith.

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She also suggests spending time developing a personal brand before you need to raise.

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“Be vocal about what you’re doing and the progress you are making. Someone may see you and tell another VC about what you're doing. All of that can help.”

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Now into her second raise, Potroz-Smith says it’s important to communicate every win and be upfront about the aspects that aren’t going well while having a clear mitigation path to overcome those hurdles.

Find supporters

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Mrinali Kumar, co-founder of plant-based ice cream brand EatKinda, has so far raised $450,000 of a $600,000 seed round, which she’s found much tougher than expected. 

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“It has been difficult given that we’ve hit all the milestones so far. We’ve actually grown really quickly for a startup and we have global traction,” says Kumar.

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“I do feel like gender is playing a role in how hard it’s been. I came from a community that really looked after me, but when we branched out I found myself in a lot of meetings where you feel like you’re definitely being looked down on. You get told you don't know about your business.”

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Kumar’s advice to female founders is to build a supportive community and be prepared to persevere. “Find those people who can pick you up when you need it.

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“Pitch meetings really make you feel like you’re not enough. You need someone who will tell you you’re doing the right thing or suggest changes to try,  and give you good advice.

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“The sad thing is sometimes people will advise you to ‘get a man in’ which isn’t the way to change things.”

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The next steps

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In October, California signed into law Senate Bill 54 mandating that VC funds release annual reports detailing the diversity metrics of their investments. The US VC industry has historically allocated only 5 percent of capital to startups led by women, black or Latino founders annually.

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It means any firms headquartered in California will be required to report accurate diversity data on investments made during 2024 by the start of March 2025 or risk an undetermined penalty from the courts. 

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It’s a law Rudd wants to see replicated in New Zealand and she says the Gender Investment Gap in New Zealand report was a first step in adopting similar change here. She and Gattung want to see VC firms limit their startup funding to 60 percent of one gender and a similar representation on boards.

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The next step is encouraging more VCs to share their data with an independent partner to get a wider picture of the overall size of the investment gap.

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“It’s not about demonising anyone; it’s about just swallowing it and looking really hard at your data. Everyone’s data around gender and investment is probably going to be bad, but you can’t improve unless you look,” says Rudd.

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“I want to bring the venture capital firms along on this ride. I’d love to hear from venture capital firms interested in being a part of the project and have their data recorded.’’

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Then the push will be on to get diversity reporting mandated in New Zealand law. “Now’s the time to get in the waka!” says Rudd.