It’s an unfortunate fact that women founders tend to raise less venture capital over time than their male counterparts, according to a recent article in the Harvard Business Review. And while it’s great to see the world of venture capital becoming more and more diverse, there are still systemic biases that sadly remain.
In short: potential investors essentially ask men to win and women not to lose.
Ladies, how many times have you been told: “How certain are you that you’ve addressed the right market,” or “What’s your plan if you miss your mark?”
Meanwhile, men essentially get a pat on the back as soon as they walk in the door, “What’s your plan to capture market share,” or “Share with us your 3-5yr target goals.”
The difference is not exactly subtle.
These are just a few examples of challenges women face and are forced to overcome in both our society and culture. Like men, women should be encouraged and rewarded not just for their achievement and success, but for their ambition also.
But the situation’s not all gloom and doom.
Here are three exit strategy insights for women founders facing a disconnect with regard to attracting venture capital investors, and their ability to exit and liquidate the value of their company. opening paragraph(s) here
1. Your mission and values matter.
If your goal is to build generational wealth and make an impact on the world, you can do that in two ways:
● build a company that makes its impact as an independently, privately held entity with generational successors
● exit through a venture scaling hypergrowth model to be acquired by a large corporation or IPO
Both exits build wealth through your company stock. A venture capital path would lead to building your legacy as a personal brand, with less control over your company. In an acquisition, you risk losing your company culture and values altogether.
If your goal is to stay at the company and build an iconic personal brand with voting rights and board control through these exits, creating a “superclass” of shares at the start of your company would accomplish this goal.
2. Assess your business type and size.
If you’re building your business to generate positive cash flow and earnings, you’re squarely on the opposite side of venture capital on the income statement.
It’s the culture of venture capital to seek “venture scale” through hyper growth of revenue, also known as top line growth.
This often leads to a numbers game of growing revenue through “paid growth” to drive valuations high enough to create a strong perceived indication of future earnings, by “burning” through “runway” vs. internal cash flow. And by doing so, create a transformative return that can be liquidated by an IPO.
This is not to say you shouldn’t seek venture funding. These days you’ll now find more micro VC firms more open to pre-seed rounds with lower minimums that favor businesses seeking high ROI on programs that build brand loyalty, awareness, organic growth, and cash flow to fund these programs ongoing, which often take 7-10 years to scale, versus the high minimums of the past, which favor investing in companies owning proprietary technology, patents and other trade secrets that are highly scalable within 2-3 years.
More recently, a growing number of women and diverse “first check” investors have entered the venture capital space, with lower thresholds and longer time extents.
3. Venture Capital is not the soul of entrepreneurship.
Venture capital was founded 75 years ago in 1946 to invest in speculative biotech and engineering innovation on behalf of wealthy families and institutional investors that would result in transformative exits within 2-3 years.
That same year, a woman from Queens, NY debuted a line of skin cream she made in her kitchen, funded out of her and her husband’s savings, and sold in their own store in Manhattan. Every day on her way to work, she’d give away creams to neighbors and local businesses and get feedback.
Two years later, she would establish what she called her “power base” of luxury retail accounts – one of them being Saks Fifth Avenue. She’d undercut her competitors by going to each store and doing makeup for them for free, handing out free samples and tutorials. Twelve years later, she launched her overseas line at a new account: Harrods in London.
Estee Lauder Companies later went public at $26 per share in 1995 at a valuation of $390 million, Issuing Class A shares to the public at one vote per share, and keeping Class B shares for the Lauder family at 10 votes a share.
As of today, those shares are worth $315 per share – a 1,211% return for the public shareholders, and a net worth of $23 billion for the family with a 40% equity stake.
And to think in her first year of doing business, she made only a mere $50,000.
The soul of entrepreneurship is establishing an emotional connection with your customers, users, and/or subscribers because you’re building a company to make an impact for generations, not exclusively to scale within five years to make someone else rich. And while the times are different, human nature is not.
Women as founders are a force to be reckoned with. When net income losses narrow, an exit is not far off.
To clarify: I’m not implying here that women entrepreneurs should play in a separate sandbox from their male counterparts: the takeaway is that you can’t fit a square peg in a round hole, and what works well for some may not work for all. If venture capital is right for you, know what that means, pursue it, and confront the wall of systemic biases on your own terms. If it’s not the right fit, recognize that upfront and seek the capital you require elsewhere, because, believe me, it is available.
Exit on your own terms.
This is an excerpt from the book, “The Founder Centric® Plan: Exit on Your Own Terms” by Daniel Evans, a Pre & Post Exit Planning advisor to founders in farming, food, beauty wellness & fitness companies.