Stop Bootstrapping, Stop Leaning In, and Organize

Stop Bootstrapping, Stop Leaning In, and Organize

It used to be that only men were called entrepreneurs.1 But women have been entrepreneurs for a long time.2 We have opened and run businesses out of necessity, passion, and genius. We’ve had to do it while caring for children and prior to having the right to vote. We started businesses back when we could not take out a loan without a man, and we are still starting businesses while earning 80% of what men earn.3 Maybe we weren’t called entrepreneurs, but we were doing it anyway: because we needed to, because we cared, because we knew we had it in us, or because our ideas were just too good.

Today, more and more women are launching businesses4—and this is good for everyone. As of 2017, woman-led enterprises employed nearly nine million people in the US.5 One international survey found that women are more likely to engage in entrepreneurship that has an environmental or social mission.6 More than one study has indicated that women-led businesses produce greater returns for investors.7

But, somehow, women are getting way less investment funding than men. Way less! In 2018, only 2.3% of venture capital investments went to female-founded startups.8 This isn’t necessarily because women aren’t trying (as some people claim). It turns out (surprise) that more than 90% of investment partners in venture capital firms are men,9 and (you guessed it), men prefer to invest in other men.10 One research team believes this is due to “outright sexism (explicit or implicit) [or] more subtle things, such as a desire by male investors to mentor founders who remind them of themselves.”11 Another study concluded that “[w]omen do face bias in terms of the masculine stereotype held by the majority of the male dominated investment community: during the pitch, women should ‘act’ like men and indicate masculine behaviors or they may be penalized by investor audiences for not having the qualities they believe to be consistent with entrepreneurship.”12 By contrast, according to a TechCrunch report, “[t]here is clear evidence . . . that the small number of venture firms with female founders and/or an unusually high percentage of female partners invest at elevated levels in female entrepreneurs.”13

It’s possible that adding more women to the VC mix could help balance things out.14 But maybe, for those of us who want to build a new economy, this is not the best use of our energy. As Jenny pointed out last month, the VC model is designed to enrich a few wealthy people, and it perpetuates inequality regardless of the identity of the founders that get funded.

And anyway, until the VCs include more women, assuming that will help, what are women entrepreneurs going to do? They can (a) struggle in silence and bootstrap their businesses (find out what that is and why it’s a problem here); (b) try to act more like men and lean in at meetings with VCs (which might not help much according to Michelle Obama and a bunch of other people);15 or (c) they can get off those treadmills, organize for their common goals, and do something more productive.

Women, let’s (c), get organized. Why wait for male VCs to finally decide we are worthy? We—and our mothers and grandmothers—didn’t wait for anyone to tell us we could be entrepreneurs.

Here are some suggestions. Business owners or not, we can:

  1. Invest in women-owned businesses that share our values. Investment crowdfunding platforms are a great place to start. They are easy to browse, and anyone—regardless of wealth—is allowed to invest at least something (there is a weird sliding scale based on income and net worth that you should know about). Check out these female-led, mission-driven companies on Crowdfund Mainstreet.
  2. Join investor communities that prioritize women-owned businesses. Angels of Main Street is open to everyone and is a place to learn about investing in mission-driven enterprises and be introduced to companies currently raising capital, including many led by women.
  3. Tell other women to do (1) and (2).

Are you a woman entrepreneur focused on raising capital for your business? Do you want to connect with legal and capital-raising experts and join a mastermind group of like-minded, badass female founders? Please join us at our July 2019 Retreat—Be A Money Magnet—to step into your power and get the RIGHT funding for your business.

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FAQ:  How can I get funded without giving up too much of my business?

FAQ: How can I get funded without giving up too much of my business?

In a recent virtual training, I asked participants to submit their top questions about raising funding from investors.  Below is one of the most commonly asked questions.

How can I get funded without giving up too much of my business?

Many business owners think that if they raise money from investors, they will have to give up a big chunk of ownership and maybe even control of their company.

This is a myth! It is absolutely possible to raise money from investors without giving up any ownership at all or giving up an ownership percentage that you feel comfortable with.

The reason this is possible is that the return on the investment you offer does not have to be tied to ownership of your company. If the only way an investor can ever get any return is via the sale of your company, then yes, investors will want as big a chunk of ownership as possible. But there are lots of other ways for investors to get paid.

The key is to carefully design your investment offering so that it fits with your goals, values, and plans. If you need help designing your offering, please sign up for a complementary financing strategy session. 

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Is the VC model perpetuating the racial wealth gap?

Is the VC model perpetuating the racial wealth gap?

You may have heard the shocking statistics about venture capital investments in businesses founded by Blacks and Latinos.  “Less than 1% [of venture-backed companies] have a black founder; same for Latinx. A mere 0.2 percent of venture deals go to black female founders; in fact, only 26 black female founders have raised over $1 million in outside capital…ever. The average amount of venture capital to black female founders is only $36,000 compared to the overall average of $1.3 million invested.” (Herrling, S., “Women-Led Startups Aren’t Getting Funded, and There’s a Very Simple Reason WhyInc. Magazine, June 2018)

Undercapitalization of businesses owned by people of color exacerbates the racial wealth gap.  While a small group of venture capitalists and venture-backed founders—a huge percentage of whom are white, male, and privileged—become increasingly wealthy, the vast majority of small business owners struggle to keep their doors open and deplete their personal savings (if any) in the process.  Some will make it, but many will fail due to the lack of sufficient capital.

The median net worth of Black and Latino families stands at just $11,000 and $14,000, respectively—a fraction of the $134,000 owned by the median White family.  Even more disturbing is that when consumer durable goods such as automobiles, electronics and furniture are subtracted, median wealth for Black and Latino families drops to $1,700 and $2,000, respectively, compared to $116,800 for White households. (Asante-Muhammad, Collins, Hoxie, & Nieves, “The Road to Zero WealthProsperity Now, September 2017)

What is the best way to solve this problem?  Many suggest that we just need to diversify the venture capital industry.  Add people of color, stir, and somehow inequality will start to disappear.

But what if the venture capital model itself is all about perpetuating inequality, regardless of the race of the participants in it?  The venture capital model provides investment opportunities only to the very wealthy.  Once a company receives venture investment, it is expected to grow as fast as possible so that it can have an “exit” (i.e. get bought by a larger company).  The vast majority of venture-backed companies don’t make it to an exit and they go out of business, often leaving employees and suppliers in the lurch.  (Estrada, L, “Munchery:  How a venture-backed startup swindled a group of women and minority owned companies out of over $50,000 and is getting away with itMedium, January 2019)

If there is a “successful” exit, it makes the wealthy investors even wealthier, and the benefits don’t trickle down to the lower paid employees, much less to the customers or communities that supported the business in its early days.

Rather than try to diversify a system that by its very design concentrates wealth in fewer and fewer hands, why not focus our energy on alternatives that have the potential to bring greater wealth to the many and not just the few?

Let’s focus on strategies that make it possible for EVERYONE to invest in the businesses they believe in and care about.  And let’s design those investments so that investors can get paid without there having to be a unicorn-style exit.

If you would like to join the movement to democratize small business investing, please join us at www.AngelsofMainStreet.com.  If you’re an entrepreneur who would like to raise capital outside of the venture capital model, please sign up for a strategy session to learn about how this type of funding could fit your business.

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What entrepreneurs really want to know about raising money

What entrepreneurs really want to know about raising money

I recently held a virtual training and asked participants to submit their top questions about raising funding from investors, and I got a lot of great questions!  I wanted to share answers to some of the most commonly asked questions:

Can I talk to potential investors before I deal with the legal compliance part?

No!  A lot of business owners don’t realize it, but talking to someone about investing in your company is a highly regulated activity and you MUST deal with state and federal legal compliance before you offer an investment opportunity to anyone.  If you inadvertently break the law governing how you can talk to investors, you will create a potential liability that could affect your business’ success in the future. The good news is that there are many legal compliance options available to fit your situation.  Just be sure you know your compliance strategy before offering an investment to anyone.

How do I decide between a public offering and a private offering?

There are two general categories of legal compliance strategies: 1) strategies that allow you to publicly advertise the fact that you are raising money and 2) strategies that require you to keep your investment conversations private.

My clients and I have done both, and I have to say that I am partial to public offerings.  I believe it is much easier to find investors when you can shout from the rooftops that you are raising money!  Plus, with public offerings you can generally set the minimum investment rather low (e.g. $1,000 or less) so that investing is accessible to far more people.  With private offerings, you generally are allowed to have fewer investors, so you have to limit yourself to potential investors that can afford larger amounts.

Whether you do a public or private offering, you will need to do a lot of outreach and have lots of conversations with potential investors.  When you can publicly advertise your offering and the minimum investment is relatively low, it is much easier to find the right investors and have them say “yes”.

So, why doesn’t everyone do public offerings?  The main reason is that public offerings generally require more extensive up-front legal compliance because the law assumes they are riskier for the investing public.

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Will it turn investors off if you tell them about your mission?

Will it turn investors off if you tell them about your mission?

I’ve talked to many entrepreneurs who have told me they deemphasize the mission of their business when talking to investors.  They assume that investors care most about financial returns, and they worry that talking about their mission could get in the way of getting funding.

This is a terrible idea!  Most investors actually want very much to invest in mission-driven businesses that are values-aligned.  If your mission is important to you, you need to say it loud and proud. Furthermore, any investor who does not like the fact that your company is mission-driven is not a good fit for you, and you should not waste time with them.

More and more investors are coming to understand that, in the long run, mission-driven businesses are likely to be more profitable and successful.  When talking to potential investors, if you sense a lack of values alignment, it’s best to move on. Always seek out investors who are focused on your business’ long-term success, not on making a quick buck.

If you stay true to what matters most, you can and will find investors who share your vision and want to support you on your terms.

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Do you have to give up control of your company if you raise capital?

Do you have to give up control of your company if you raise capital?

So many of us have heard horror stories of founders giving up control to investors and then being pushed to do things with their business they didn’t want to do or even getting fired from their own company!  

The good news is that it is absolutely possible to raise money AND maintain control of your business.  I’ve been helping clients raise money for over 10 years, and I have never had a client who gave up control to investors!

Every business and business owner is unique — ideally, investment terms should be tailored to each situation. Unfortunately, most lawyers and finance professionals are unwilling or unable to be creative.  

You live and breathe your business, and you have a vision of what the business will look like when it has reached its ideal size and level of impact. This vision is what should inform the terms on which you accept investment. If you accept terms that are dictated by an investor, you risk sacrificing your vision, goals, and values in the name of complying with whatever the legal documents dictate.

If you structure the investment offering in a way that reflects what you value most, you will attract investors who support you, believe in your vision, and trust you to lead the business in a healthy and sustainable direction—all while YOU maintain control of YOUR business.

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