SALT LAKE CITY — The statistics are sobering.
While 38 percent of U.S. businesses are owned by women, data reflects only about 2 percent of the $85 billion spent in venture capital funding in 2017 went to businesses with all-women founder/executive teams. And, as dismal as that sounds, it's the largest percentage of annual venture funding that's backed women-led business in over 10 years, according to data assembled by PitchBook Data Inc.
In addition to the gender-based disparity in funding distribution, the size of the deals offered to women's businesses was also dwarfed by deals offered to men. Fortune reported earlier this year that the average deal size for women-led businesses in 2017 was just over $5 million, versus the just shy of $12 million offered to male-led businesses, on average.
None of these numbers comes as a surprise to Sunny Washington, the founder and CEO of Because Learning, a tech learning platform that combines lesson plans with electronics kits to boost science, technology, engineering and math skills for K-12 students.
Washington's Salt Lake City-based company was founded in 2014 and has seen steady growth in clients and revenues since it was launched, currently working with over 400 schools in 30 countries. And while Washington has found some success in securing backing for Because Learning, the time she's spent devoted to fundraising passed a breaking point earlier this year.
"We've been raising money since 2014 and have raise about $2 million," Washington said. "But it took an incredible amount of effort. A mentor told me that it's typical to have about 30 pitch meetings to get to one term sheet. My experience was it took 100 meetings to get to a term sheet.
"When you're building a company, you just can't spend 90 percent of your time raising capital ... it just got to the point where enough was enough."
The ratio of pitches to funded deals is a large one — venture capital firms have told the Deseret News they hear "hundreds" of pitches for every deal they eventually end up funding. But Washington also learned, through watching what deals were getting funded by venture capital firms that took a pass on backing Because Learning, that something deeper than just the law of averages seemed to be afoot.
"People said no to me, but yes to something else," Washington said. "But it was pretty clear that what they funded didn't represent any less risk, so why didn't they do my deal?"
University of Utah professor Lyda Bigelow, from the David Eccles School of Business' Department of Entrepreneurship and Strategy, has found through her research that Washington may have just run up against a clouded, but significant, prejudice that plays profoundly against women business owners seeking funding for their endeavors.
"There appears to be a deep-seated ... unconcscious bias against seeing women as effective entrepreneurs or risk-takers," Bigelow said.
Bigelow uncovered the anomaly in experiments she conducted for a research project that published in 2012. Part of the work included putting identical business plans for a fictional, but factually accurate, public stock offering in front of various groups including undergraduate students, graduate business school students and active finance professionals. To test what impacts gender had on how those plans were evaluated, Bigelow varied a single aspect of the information, using either an obviously male or obviously female name for the CEOs listed on the plans. Her findings, particularly among the graduate school students, were profound.
"Whenever the IPO was led by a woman, all of the financial evaluations conducted by the group skewed negatively," Bigelow said. "The only explanation was the gender of the CEO."
Data from the undergrad respondents was similar, though data from investment professionals was discounted because most failed to complete the plan reviews as stipulated in the experiment. One aspect of the findings that Bigelow described as unexpected was female respondents showing the same bias as men in the test groups.
"What was really kind of surprising to us was we thought surely women would give us a more fair and balanced equation," Bigelow said. "But, like the males, they didn't believe women would be as effective leaders or able to manage the company through external disruptions."
Bigelow said she and her research team have discussed the findings with numerous members of the venture capital investment realm who overwhelmingly responded that their work was focused on finding and backing the best ideas and management teams, and that gender did not figure into their assessments. Bigelow, whose research work is continuing to explore gender issues as they relate to business finance, said the evidence indicates the forces at work may very well be unknown to the individuals.
"I don't think for a minute that this is a reflection of overt discrimination against women," Bigelow said. "It's deeper and cultural."
A recent piece of research featured in the Harvard Business Review looked at question-and-answer sessions between a group of almost 200 startups of equitable quality and capital needs and 140 established venture capital investors. Researchers tracked the companies, following the venture funding pitches to determine which companies were funded and what, if any, disparities were in evidence. Over time, the male-led startups raised five times as much as female-led ventures.
When the content of the questions asked by potential investors was analyzed, researchers found significant differences in the types of questions asked of female founders versus those asked of male founders. Researchers noted that while investors took a predominantly "promotional" orientation toward male founders, with questions that focused on "hopes, achievements, advancement and ideals," the position most taken with female founders was about "prevention" with questions centered on "safety, responsibility, security and vigilance."
Researchers also highlighted that the tendencies held for both male and female investors.
"Both men and women who evaluate startups appear to display the same bias in their questioning, inadvertently favoring male entrepreneurs over female ones," the researchers wrote.
Rather than accepting defeat, Washington and her team sought out a fundraising workaround to the brick walls they were running into in the world of traditional venture capital.
Through a campaign coordinated by a joint venture of Indiegogo/Microventures called First Democracy VC, Washington launched a crowdfunding campaign that allows small, or micro, investors to back Because Learning in increments as low as $100. As of Friday, the campaign had attracted over 200 investors and raised over $68,000. While the amount is small in a venture capital arena where multi-million dollar deals are common, Washington sees the opportunity as very positive and remains undaunted in her quest to continue to grow her company.
"We launched the campaign and met the minimum funding goal in just six days," Washington said. "To me, it was so eye-opening and exciting to find another way to fundraise as a female founder."14 comments on this story
Cydni Tetro, co-founder and president of Women Tech Council, a Utah-based national organization that is "focused on the economic impact of women in driving high growth for the technology sector," said she believes change is afoot in the venture capital community, both in Utah and the broader market.
"Every one of the venture companies in the state are actively thinking about this, and working on it," Tetro said. "I see two great things happening. Utah companies are committed to change ... and a greater number of funds from out of the area are interested in funding Utah companies. More interest focused here just means there's a better chance for everyone to get funded."