By Megan Anderle, Editor and Contributing Writer
If you’re a female entrepreneur in need of capital, crowdfunding might be your best option. Women who raise equity financing online through crowdfunding are achieving a higher success rate, 24 percent, than those raising offline, 19 percent, an April report by market research companyVentureneer revealed.
“Crowdfunding, specifically equity crowdfunding, is leveling the playing field for female founders with skills, ability and ambition to scale companies, who might have previously encountered pushback and closed doors from the traditional boys club of VC firms,” said Geri Stengel, founder and president of Ventureneer.
With equity crowdfunding, the lender receives securities in the business for investment. The Jumpstart Our Business Startups (JOBS) Act allows equity crowdfunding when it is conducted by a licensed broker-dealer or through a funding portal registered with the SEC. There are a number of crowdfunding portals in the space; one of the most popular is Onevest. Entrepreneurs can solicit investors online, even through social media, which wasn’t legal until 2013.
Rewards-based crowdfunding requires that the lender receive something in return for an investment. Kickstarter and Indiegogo are rewards crowdfunding platforms.
Despite digitally savvy women founders being in a better position to raise money, overall women lag behind men when it comes to crowdfunding. Only 18 percent of companies raising equity through crowdfunding are women-led companies, and 16 percent are women-owned, according to the Ventureneer report sponsored by Dell and Ellenoff, Grossman & Schole.
In general, women entrepreneurs attempting to grow their businesses are 50 percent less likely to seek outside funding than their male counterparts.
The report posits that women are discouraged from seeking funding because few women are angel investors — only 19 percent of all investors, and an unconscious bias exists against women founders. Even a woman’s voice turns off investors, according to research conducted last year by a team from Harvard, Massachusetts Institute of Technology and the University of Pennsylvania’s Wharton School.
However, there are more women entrepreneurs than ever before; the number of women starting businesses has gone from 740 a day in 2013 to more than 1,200 in 2014. But these businesses are one-third less likely to surpass $1 million in revenue compared to men, in large part because women aren’t actively seeking funding as much as that could be.
There’s good reason to invest in women-led startups, though. Jamie McIntyre of Rewire Capital and David Steakley of the Houston Angel Network, who have invested in women-led companies through crowdfunding platforms, reported that women entrepreneurs make realistic projections and align words with actions. Women are more likely to meet their milestones and are more frank when mistakes happen.
Stengel moderated a panel, “Why Equity Crowdfunding Is Good for Investors and Women Entrepreneurs,” on May 6 involving four industry women: Tamara Donikyan, partner at Ellenoff, Grossman & Schole; Dara Grossman, investor executive, CircleUp; Ruchika Kumar, cofounder of SKU IQ and StockNearby; and Angela Lee, founder, 37 Angels.
The panelists shared their experience with women entrepreneurs and the challenges they face in fundraising. They gave tips for female business owners pursuing the equity crowdfunding route:
- Be diligent. “If you make any rash statements about your business’ potential, you will be pulled apart by investors,” Kumar said. “Make sure you’re diligent about your data points.”
- Really know your numbers. Echoing Kumar’s advice, Lee advised, “Don’t just tell me you’re going to capture the 1 percent of the market. I want to know that it cost you $12 to acquire each customer.”
- Make sure you have a strong advisory support system, including a ***. “You are liable for any statements you make to investors,” Donikyan said. “Make sure you understand what you are getting from investors and what they’re getting from you. And go over every document with your ***.”
- Be hands on. “Entrepreneurs most involved with fundraising do the best,” Grossman said. “You’ll never raise a ton of money by using the Internet passively — you have to be proactive.”
- Be honest and direct with potential investors. “Communicate clearly; forget the jargon and MBA speak,” Stengel said. “And make realistic projections, not big bravado ones.