Female Founders and Venture Capital: 6 Ways to Manage Your Capital
by Megan Darmody
Female founders and women in venture capital are breaking ground to prove that they deserve a seat at the table. According to a BCG study, for every dollar of funding, female-founded startups generated 78 cents, while male-founded startups generated only 31 cents.
Despite this recent progress, companies founded solely by women garnered only 2.3 percent of the total capital invested in venture-backed startups in the US, according to Pitcbook. Although the VC world still has a long way to go, there are ways in which the status quo is already shifting in a positive direction.
VC for Female Founded Businesses
The road to success is not an easy one, but down the line you’ll get what you put in. Since building a startup can be quite pricey, many founders seek financial help by acquiring venture capital. VC is a form of private equity financing to help promising startups reach their maximum potential.
Fewer than 10% of decision-makers at VC firms in the U.S. are women. This is why women-led VC funds are stepping up to help bridge the gender gap. See below for a few examples:
For more details on gender data, the state of female-led startups and tips for women to navigate a male-dominated industry, check out an in-depth guide from Embroker on female founders in venture capital.
How to Manage Your Capital
In order to get a higher return on capital, you’ll want to strategically prioritize and manage the funds allocated to you. It can be easy to spend when developing your business, as you’re most likely starting from scratch.
Continue reading below for six ways to thoughtfully manage your capital, whether it’s from a VC or another source:
1. Understand Your Financials
Especially when starting out, have a clear understanding of your company financials. The numbers speak for themselves after all, and knowing your numbers cold and understanding your business finances and metrics will set you apart. Set regular check-ins to assess how your business is doing and where it's headed. A mentor is a helpful resource to tap into if financials aren’t your strong suit.
2. Avoid Scaling Prematurely
When expecting a result, there can be lots of room for error. Sometimes, these errors can cost you a lot of money. Rather than scale your business based on what is expected, do so in response to demand. As a startup, you’re most likely still figuring out your product market fit and target consumer group. If you invest in appealing to the wrong groups, you may not see as high of a return later.
If not paid attention to early on, your problems grow at the same rate your business grows. As issues get bigger and bigger, they can be much harder to fix. This is actually why some startups fall early on. Once the issues become overwhelming, funds for fueling the fire may no longer be available.
3. Learn How to Negotiate
Learning to negotiate can benefit you in all aspects of running a business. From partnerships to employee salaries or equity stakes, always be prepared with the facts, data, or talking points. Negotiating means finding a mutually beneficial solution where both sides walk away happy with the result.
4. Hire Thoughtfully
The hiring process can leave a lot of room for error as well. Avoid hiring prematurely, as you may be spending excessive amounts on workers who aren’t even needed yet. Hiring prematurely can also lead you into over-hiring. It’s understandable that you’ll want to be prepared for fast growth, but the future is also very unpredictable. Instead, find a balance by hiring in response to demand. As you get closer to expanding, then consider hiring more employees for your startup.
Once you’re ready to hire more people, invest your saved money into hiring the right employees for your team. In desperate times, you may want to hire someone quickly for extra help right away. Try to avoid rushing through the hiring process. Your business will benefit immensely by hiring employees who are motivated and closely aligned with the company goals.
5. Operate Remotely
Ask yourself beforehand if your startup really needs an office space to begin growing. Nowadays, renting a company space is incredibly expensive. Not only will you be responsible for making the rent, but also for added maintenance costs as well. If your startup can work remotely, you’ll save yourself large amounts of money down the line. The money you save can be used in other areas that’ll benefit the business more.
6. Cut Unnecessary Expenses
As an employer, it’s important to treat your employees with care and respect. Happy employees can make all the difference in the success of your company. With this in mind, there are a few ways we can reduce our expenses with employee satisfaction. Well-established companies tend to implement perks such as fully stocked snack bars and ping pong tables in the workplace.
However, times have changed tremendously due to the COVID-19 pandemic, and companies are reassessing expenses and have moved full time remote. As a startup, building a positive culture should be a priority. You can achieve this by valuing your employees, and proving to them that their work matters.
It’s no surprise that starting up a business is incredibly difficult and expensive. With a limited amount of funds available, you’ll want to make sure that you’re using it towards the right things. Every startup is different, so what one business spends money on may not be as beneficial for your company.
Megan is most passionate about creating and promoting unique content that drives growth. When she's not at work, you can find her camping with her dog, sweating it out in hot yoga, or consuming way too much coffee.