The well-documented gap in venture capital funding also exists in Chicago.
In the last five full years, Chicago startups with at least one woman founder never received more than 20 percent of the venture capital funding or deal flow in the Chicagoland area, according to data provided to Chicago Inno by data firm Pitchbook. In that time, startups led only by women have never received more than 9 percent of venture funding or deal flow in the Chicagoland area.
Even as resources for women-founded ventures has grown in Chicago (and despite increased scrutiny of the gender gap in startup funding in recent years) it doesn’t appear that deal flow to women founders in the city is trending upward just yet. In 2016, just 15 percent of deals and just 10 percent of venture capital dollars went to Chicago-area companies founded by at least one woman (comparatively, 16.9 percent of VC deals in North America in 2016 went to companies with at least one female founder).
This continued disparity shows there’s still something standing between women-founded ventures in the city and the term sheet.
Venture capital deals that include at least one women founder has fluctuated between 15 and 19 percent between 2012 and 2016. The best year for deals involving women founders? 2012, when women-founded companies made up 18.8 percent of deals. The highest number of deals including women founders was in 2014, with 49 deals.
However, those numbers include ventures that have at least one female founder (but could also have a male cofounder). When broken down to look at funding for the number of startups led only by women, the picture grows bleaker: Women-led ventures in Chicago have, at most, made up 9 percent of deals during the last five years.
When looking at venture capital dollars, startups with at least one woman founder received between 9 and 20 percent of Chicagoland’s overall funding in those five years. Women received the biggest chunk of the funding pie in Chicago in 2012, when women-founded ventures received 20 percent of the venture capital money in Chicago. The most money that women received in total in any of those five years was $199 million in 2014.
But once again, ventures led only by women receive a far smaller piece of the funding pie: Women-led ventures never received more than 3 percent of VC funding dollars invested in Chicago in those five years. In 2016, just eight startups with only women founders raised funding in Chicago, accounting for just .9 percent of venture capital dollars invested in Chicago.
This year is set to look a little different, given Outcome Health, cofounded by Shradha Agarwal, raised a whopping $500 million round. With this in mind, women-founded ventures have actually raised 57 percent of VC funding so far in 2017 despite accounting for just 23 percent of deals so far.
What’s the fix?
The challenges women founders face in fundraising are well documented. Investors are more likely to ask female founders prevention questions (such as how they’ll retain customers) than promotion questions (how they’ll acquire customers), which leads to less funding, according to a Columbia University study. Even having one woman cofounder appears to decrease the amount of venture capital funding a startup will raise, a Babson College study found. Women have faced questions about their dating life and plans to have children, and, in worst case scenarios, have been propositioned as part of the investment conversation. These are just a few of the many variables at play, which presents both a challenge (what’s the most pressing obstacle to tackle?) and an opportunity (there are many ways to improve).
Chicago Inno talked to a half dozen women founders, investors and organizers in the Chicago community about the challenges they’ve faced while fundraising and what can be done to change the continued disparity.
Julie Novack has raised $3 million for PartySlate, a tech platform for event planners. While she said her earliest and strongest supporters have been male investors, she’s also ran into skepticism from men who didn’t take her idea seriously.
“’Aren’t all parties kind of the same? Yellow or red tablecloths?’” said Novack, recalling a line of questioning from a pitch competition judge. “There was no understanding that for the women running these large-scale, mission critical fundraisers for cancer research or for the Children’s Hospital that the party and the event connect people to the charity and encourage them to come back the following year.”
“That was the first time I thought to myself, hm, I might have some obstacles,” she said.
“I’m not saying [men] can’t see our vision,” she said. “But there’s a better chance if it’s a company focused on women that [women] are going to relate or see the big opportunity.”
However, given just seven percent of partners at top firms are women, responsibility lies on the shoulders of all investors, said Alyssa Jaffee, a senior associate at Pritzker Group Venture Capital (which was recently highlighted as having the highest percentage of women-founded startups in its portfolio among top US VC firms).
“I look at industrial tech business, I look at robotics businesses, I look at businesses that maybe aren’t my gender stereotype,” she said. “Anyone looking at a business with a ‘me-centric’ approach probably isn’t thinking about it on the macro level…Very rarely are we the target demographic. And so how can we think about these businesses on a bigger scale, the market opportunity and how amazing the founders are?”
“How can we think about these businesses on a bigger scale, the market opportunity and how amazing the founders are?”
Jaffee, who cofounded career platform Transparent Career before taking a role at Pritzker Group, believes the best chance for boosting the number of women founders is by providing the resources that help women build strong companies and get comfortable with risk.
“What we can control is making new business formation easy and accepted, so we are creating an underlying culture of risk-taking and that becomes the norm,” she said. “I would not only like to see female entrepreneurs raise more dollars, but get a larger slice of the pie.”
Katlin Smith, founder of gluten-free baking mix startup Simple Mills (one of just eight Chicago companies run solely by women that raised funding in 2016), said rigorous training and mentorship through the months-long process of University of Chicago’s New Venture Challenge pushed her to pitch her company in a more ambitious way.
“I was fortunate to have mentors at [an early] stage of the business to help me understand just how large our company could be,” she said. “I was obviously thinking smaller at one point in time. And I hope that doesn’t happen to other women founders. I want them to think big and realize that their companies truly can be national or multinational.”
Not to mention, pitching her company to dozens of investors and mentors throughout the NVC experience also helped prepare her for the fundraising process, where she would sometimes talk to eight or nine investors in a day.
“If you can come off as very confident, that can help you in the fundraising process,” she said. “The more experience you get pitching investors…the more that’s going to help you be successful in the fundraising process.”
WiSTEM, the 1871-based accelerator for female founders (now on its 5th cohort) recently partnered with InvestHER Ventures to provide pitch practice, feedback and advice to women who are going the venture route.
“We’re trying to put them in the room with investors and get advice and feedback on how to pitch their products so that it doesn’t matter who’s in the room,” said Jessica Williams, co-facilitator of WiSTEM.
That said, Williams noted that just half of the women come into the accelerator actively fundraising in some way (including angel and friends/family rounds). Those who choose not to fundraise find it appealing to own more of their own company or just aren’t sure they’re ready to take that step in scaling, she said.
WiSTEM also educates women on the opportunities in alternative financing that venture capital doesn’t offer. Jamie Migdal, a WiSTEM alum and founder of pet industry career and education platform FetchFind, raised a friends and family round to initially fund her business. But she also recently raised $110,000 in an equity crowdfunding campaign as a way to test FetchFind’s product market fit and get customers onboard with their vision. While she’s still meeting with investors, Migdal said that there’s also the opportunity to grow through revenue, and is keeping her options open.
That freedom — the ability to choose the financing that will create success for each business — is what Williams wants to see.
“I’d like to see that number [of venture funding to women founders] rise, but from my perspective I want female-founded companies to find whatever that method is that works for them,” Williams said.
“I want female-founded companies to find whatever that method is that works for them.”
Cayla Weisberg, partner at InvestHER Ventures, agreed that founders need to make an educated decision on the funding route that is best for their company. But she added that she believes venture capital can play an important role in leveling the gender imbalance in tech.
“The venture route…provides a massive opportunity for startups to partner with strategic industry leaders through their investor network, and scale at a faster pace by fueling capital into technology, talent acquisition, or market expansion (to name a few),” said Weisberg said over email.
“Growth like this often allows venture-backed companies a faster path toward a strong exit, which frankly, is what we need to see more of with women-led companies in Chicago,” she said.
Note: Updated to reflect that WiSTEM is on its 5th cohort, not 4th.