Female-owned fintechs lag in VC funding, but are more likely to succeed
Companies founded by women receive significantly less than the venture capital available to all U.S. firms, but trends are improving for all startups this year, including for women-owned fintechs.
About 15 percent of the $82 billion in U.S. VC funding went to female-owned firms last year. VC is heading toward its first peak in a decade in 2018, and firms headed by women may reap record amounts, according to Pitchbook.
VC funds are available for females launching fintechs, but women need to know the keys for asking for funding and advice in VC circles, said Kim Seals, speaking on a panel last month about women in fintech at the Women's Network in Electronic Payments summit in Atlanta.
As a founding member of Golden Seeds, a New York-based investment firm that focuses on early-stage women-led companies—including fintechs—Seals sees plenty of momentum for women receiving VC funding.
“Women-owned firms are thriving and now more women are moving into the partnership role in venture capital, which is accelerating progress,” Seals said, adding the percentage of women working on the venture capital funding side also is approaching 20%, a significant milestone.
But it’s still challenging for women launching startups in the traditionally male-dominated financial services technology industry, and it takes a certain combination of grit and flexibility to win funding, according to Seals.
“Investors are looking for people with good ideas likely to succeed, and the willingness to work hard, listen and receive input, and make course-corrections if necessary. The willingness to be coached is key,” Seals said.
Chemistry and communication is vital when matching VC funders with startups, she said.
“Investing in a company is like having a marriage and a divorce all at once—upfront—this is why entrepreneurs and funders need to form teams that can really work well together under pressure if they’re going to succeed,” Seals said.
One reason females are rising in fintech is the sense that when women are involved on the entrepreneurial or funding side, the outcome is usually better, said Keri Gohman, president of the Americas for cloud-based accounting and payments firm Xero, another panel participant.
“If there’s a woman in a key leadership role in a fintech startup, or a woman funding it, the company has a better-than-50 percent chance of success,” said Gohman, who previously was a payments executive at Capital One and currently serves as a special advisor to the New York-based VC fund FinTech Collective.
Gohman backs up her theories with anecdotal evidence, along with third-party research. One example is a widely cited report from First Round Capital a few years ago claiming that companies the VC firm invested owned by a female founder performed 63% better than those founded by all-male teams.
“Getting access to capital is still a challenge for women, but you’d be surprised how many funders will say yes if you ask and shape your pitch appropriately,” Gohman said.
Female fintech entrepreneurs should first determine how much money they need—and at what stage—before they seek funding, Gohman advised the audience.
“Get accounting advice and make sure you need funding—don’t ask for it if your idea is iffy. Ask experts for their opinions, get help and if you’re not sold on your own idea, move on to a different idea or regroup so you don’t waste an opportunity,” Gohman said.
Gohman advised women in fintech startups to pursue mainstream paths to getting funding, rather than attempting crowdfunding or digging into personal savings and loans.
“Most companies that are successfully raising money are following SEC guidelines, using accredited angel investors first for seed money checks that average about $35,000, and turning to venture capital later when there are more proof points, looking for funding at the $500,000 to $2 million level,” she said.
All fintech entrepreneurs should realize most successful startups fail many times at first, panelists said.
“You need to be ready to encounter difficulties, and prepared to roll up your sleeves and start over again—having setbacks doesn’t mean you failed,” Gohman said.
No successful entrepreneur does it alone, said Kathryn Petralia, another panel participant, who is a co-founder of the lending app Kabbage, launched in 2009.
“Kabbage was my seventh startup, which many people don’t realize,” Petralia said.
When she was preparing to launch Kabbage a decade ago, she had very few connections and had never heard of LinkedIn.
“I didn’t know about venture capital and I had no access to networking groups I needed; they didn’t exist,” Petralia said.
But her experience from previous attempts to launch companies played a powerful role this time around.
“Women tend to suffer from the imposter syndrome—we struggle from being called out as wrong, but we overcome this with experience and build on our own success,” Petralia said.
Pitchbook’s latest data suggest females are gaining more momentum in venture capital this year. The first half of 2018 puts women on track to significantly surpass last year’s total venture capital investments. If present trends continue, female-owned startups will hit $15 billion in VC funding this year, up from $12 billion last year, Pitchbook said.