The conversation around venture investing for women-led businesses has been gaining momentum in recent years, with the alarming statistic that less than 3% of equity investment is going towards women-led businesses, despite women representing 40% of business owners today. This issue of gender disparity in venture capital has prompted the emergence of organizations like Women’s Equity Lab, which is dedicated to increasing the capital and support for women entrepreneurs.
Women’s Equity Lab (WEL) is a woman-founded organization that pools expertise and risk capital to invest in early-stage companies. With over 200 women investors in their collaborative investment model, they evaluate and make investments together, building portfolios and empowering women investors in the process. In a recentl podcast episode, Shannon spoke with Stephanie Andrew, founding partner of Women’s Equity Lab to talk about the way WEL is creating opportunities to invest in more women led companies AND bring more women investors to the table.
Venture Investing
What exactly is venture investing, and how is it different from other types of funding available to entrepreneurs? Venture investing involves providing capital to a company in exchange for shares of the company, which investors receive a return on once the company has sold or gone public. This is different from other types of funding, like borrowing money, which typically involves receiving capital for fixed terms and interest rates.
While venture investing has traditionally involved providing capital for equity, the lines have blurred somewhat in recent years, with the emergence of safe agreements and convertible debt. As such, it is important for women entrepreneurs to understand the different types of external funding available to them as they start and grow their businesses.
The Women’s Equity Lab is doing important work to level the playing field for women entrepreneurs in the venture capital space. By pooling risk capital and expertise, they are building a network of sophisticated women investors who are empowering each other and investing in early-stage companies led by women. This is a crucial step towards increasing the capital and support available to women-led businesses, and ultimately towards creating a more equitable and inclusive entrepreneurial ecosystem.
Myths Around Venture Capital
Regarding the myths around venture capital, it is important to note that a deep financial background is not necessary to participate in venture investing. While financial knowledge is certainly helpful, investors also consider factors such as the team’s understanding of the market and product, decision-making skills, and overall potential of the investment opportunity.
Seeking Investors
For women entrepreneurs, investors look for indicators such as the founding team’s:
-Perseverance
-Expertise in the industry
-Market size
-Competition
Additionally, early-stage funding is often beneficial for companies that are introducing new products, exploring new markets, or scaling to new geographies.
Trust is an important factor when looking at the founding team. Women’s Equity Labs looks for transparency and a willingness to disclose information. If a founder is excessively positive and not willing to talk about challenges or issues, that can be a red flag. On the other hand, a founder who discloses information, even when things are not going well, is a good sign.
“There’s always going to be challenges and issues, and if a founder is not willing to talk about that, then that’s probably a red flag.”
-Stephanie Andrew, founding partner of Women’s Equity Lab
Women’s Equity Lab tends to look for companies with some degree of revenue validation, even if it is early stage with only a few months of revenue. However, the lab does not typically invest in companies with a long timeline to commercialization as an early-stage investor. Instead, they look for companies that are closer to commercialization with a clear plan for marketing.
Accredited Investor
The term “accredited investor” refers to a person who meets certain financial criteria set by securities regulators. In the United States, an accredited investor must have an annual income of at least $200,000 (or $300,000 combined with their spouse) or have a net worth of at least $1 million. In Canada, the criteria are similar, with an accredited investor having an annual income of at least $200,000 (or $300,000 combined with their spouse) or a net worth of at least $1 million.
Historically, only accredited investors have been allowed to participate in certain types of investment opportunities, including early-stage investing in private companies. However, this is changing as securities regulators introduce new exemptions to allow non-accredited investors to participate in these types of investments.
WEL is one example of a company that is leading the charge in making early-stage investing more accessible to non-accredited investors. WEL is currently working with the Manitoba Securities Commission to allow for non-accredited participation in their women-led companies fund. Through WEL, investors can invest in three to five companies per year with a set amount of money, allowing them to build a diversified portfolio and mitigate risk.
Investors in WEL’s network can also participate in cross-provincial deals and invest in companies located throughout Canada. This is an important step towards making early-stage investing more inclusive and accessible to a wider range of investors.
Women’s Equity Labs Investing
Women’s Equity Labs invests in early stage rounds, which are typically pre-seed or seed-stage rounds that are typically 500,000 dollars or less, with the smallest check size being 50,000 dollars. However, through their network of investment groups, they can share the investment with other investment groups and co-invest, which allows for the money invested in the company to come from multiple investment groups. Additionally, the women involved in the investment process are able to provide expertise and support to the company.
When looking at potential investments, Women’s Equity Labs prefer women-led or women-founded companies, but have invested in all companies because they believe in shareholder diversity. The company should have some early stage revenue and be in the pre-seed or seed stage. They look at the go-to-market strategy, competition, uniqueness of the product, and the advantage of the product versus the competition.
In conclusion, the gender gap in venture investing is a critical issue that needs to be addressed. The fact that less than 3% of equity investment is going towards women-led businesses is unacceptable, and it’s time for change. Organizations like Women’s Equity Lab are leading the way in increasing capital and support for women entrepreneurs, and we need more initiatives like this to level the playing field in venture investing. It’s time to recognize the potential of women-led businesses and provide them with the resources they need to thrive. By working together, we can create a more inclusive and equitable future for all entrepreneurs.
The Finance Cafe