TVO: Why can't female entrepreneurs catch a break?

Women lead about a third of all tech startups in Ontario, but many still don’t see them as good investments

  A U.S. study conducted in 2014 found that women were more likely to receive funding later in the life of their companies. (baona/iStock)

A U.S. study conducted in 2014 found that women were more likely to receive funding later in the life of their companies. (baona/iStock)

When Caitlin MacGregor started looking for seed funding for her startup in 2014, she didn’t think it would take two and a half years to raise $2 million.

“Without any doubt, that’s at least twice as long as any male CEO that I’ve ever come across,” she says. “That’s a really, really long time.”

MacGregor was raising money for Plum, a company that offers psychometric assessments and a matching service for job candidates and employers. “Candidates complete an assessment that tests for problem-solving ability, social intelligence, and personality priorities,” she explains. “And then we have the employers complete a job analysis … And then we match the applicants against the requirements for the job.”

While there are many psychometric tests on offer in the marketplace, MacGregor says her software’s ability to match candidates to jobs makes it unique. But even so, raising capital was a slog. “Fundraising is a full-time job, so that was energy away from my business,” she says. “That was time that I could have been closing sales, that was time that I could have been attracting talent, that was time that I could have been doing things other than raising money … It really holds the company back.”

She was pregnant at the time, but she continued to fundraise and took just two months off after the baby was born.

As a female founder, MacGregor’s experience is far from unique: a U.S. study conducted in 2014 found that women were more likely to receive funding later in the life of their companies. Companies with female founders received only 9 per cent of investments in the seed-funding stage, and 13 per cent in the early stages.

“Women entrepreneurs who are CEOs and searching for venture capital funding ought to be aware that the odds seem to be against them in terms of the likelihood of actually receiving funding,” the study says.

This even though the number of startups with at least one female founder hovers around one-third of all startups in Ontario, according to Toronto’s MaRS Discovery District. And firms that have a woman in the C-suite  perform as well as or better than male-led firms.

In the U.S., the numbers are even more dire: just 17 per cent of tech startups are led by women, and women received just more than 2 per cent of all venture capital funding in 2016 — a decrease over recent years.

MacGregor has now started her Series A round of funding — the first significant venture capital fundraising round — and is aiming to raise $5 million. “I will be the first woman CEO from [Business Development Bank of Canada’s] portfolio companies to raise $5 million in one go. I’ll be the first. This is 2017. I shouldn’t have to be the first, but I will be the first.”

“I’m recognizing that that means I need to do something different that other women haven’t done in front of me,” she says. “So I’m just being bullish in asking for that help and accepting it and not shying away. I haven’t had direct sexual harassment, I haven’t had direct verbal harassment, I haven’t had direct discrimination, but there’s enough indirect that I can’t put my finger on that it’s hurting the business, so I’m going to just ask for help.”

Recently, Canada has seen the launch of initiatives that seek to help women secure funding. Last year, BDC announced $50 million in funding for women-led startups — $5 million of that went to StandUp Ventures Fund I, run in collaboration with the MaRS Investment Accelerator Fund, which invests “in Canadian pre-seed and seed-stage high growth, capital efficient ventures in Health, IT and Cleantech.”

In January, Toronto became home to Move the Dial, which aims to improve leadership diversity in tech. And global initiatives, such as SheEO, that encourage female-led startups and provide funding have held events across Canada.

“We don’t have enough support, but we’re getting there,” MacGregor says.

Earlier this year, Tealbook, a company led by Stephany Lapierre, was the first startup to receive funding from StandUp Ventures. Tealbook is a cloud-based platform that makes it easier for companies to source and organize supplier information, reducing the cost and time it takes for firms to find the right companies to participate in procurement processes.

“We have a massive opportunity to be the market leader in supplier intelligence,” Lapierre says.

Lapierre first encountered the bias against female founders when she started trying to raise money. “It’s mostly investors that made me feel this way.” Investors, she says, have told her that her chances of raising money as a woman are not high and that she’s cute, so she’d get meetings — but maybe not cheques. “I don’t really know what the deal is, for them not to feel that they should support. Or feel that women are not able to accomplish what a guy could accomplish.”

She says that being a woman and a mother adds a barrier to fundraising. “I’ve seen a male counterpart … who has just an easier time raising funds … I think there were things missing in my equation that needed to be dealt with to get capital, but there’s definitely a stigma.”

Lapierre eventually hired a male chief operations officer. “When we met investors, he was not formally hired yet, and all the investors were talking to him … And he had to point it out. ‘You know she’s the CEO, right?’”

Most investors are men. In the U.S. only 7 per cent of partners at the top 100 venture firms are women.

The numbers in Canada are a bit better: women held about 12.5 per cent of investment roles at VC firms here in 2014. But MaRS Data Catalyst found that of 39 VC firms in its data set, just 17 had invested in companies that had a female founder.

But even if the number of women in investing roles increases, it’s not clear that funding for women-led startups will see a corresponding bump; one report shows that although the number of women in venture capital funds increased in the U.S. between 2014 and 2017, the funding gap between women and men widened.

Discrimination may also alter the tenor of pitch meetings. When speaking to male entrepreneurs, investors ask questions related to their “hopes, achievements, advancement, and ideals” for the company, while questions posed to women are more about “safety, responsibility, security, and vigilance,” according to a 2017 study.

“What happens from that is that women often would raise less money at lower valuations than the men,” MacGregor says. “So now that I’m raising my Series A, well, if I had raised all that money sooner, then my traction numbers, my growth trajectory, would have been on a steeper curve, would have happened over a shorter period of time, and I would have had more fuel to invest in all of these things to allow for that growth.”

Nevertheless, Lapierre is confident about the future. “I think it’s getting so much better,” Lapierre says. Focusing on women’s successes, she believes, will help generate awareness. “We’ve come a long way, and I think that there’s still more to be done. I think encouraging women to build their companies, giving them the right set of advice, being there to support each other as mentors, genuine mentors, is going to be critical for the next generation — even my generation — to be able to be successful at securing capital.”