Mindset insights: the impact of COVID-19 on fundraising for female founders

Since the COVID-19 crisis hit, founders have seen investors hitting pause in the middle of diligence, term sheets pulled at the last minute and traditional methods of fundraising turned on their head.

While the new investment landscape is difficult for both male and female founders, the gender gap is still a reality in the Venture Capital world. Adapting to a new fundraising environment when female founders were just starting to catch up with their male peers can be an extra challenge, as subjective perception and in-person relationships play an important role in investment decisions.

In order to better understand the impact on fundraising for female founders, Mindset Ventures conducted a survey of women investors and founders from our network on the challenges and benefits presented in this unique moment.

This issue is important for us as a VC fund co-founded by a woman, with women making up 50% of our investment committee and as a signatory of the Parity Pledge confirming our commitment to cultivating a diverse pipeline of talent for our own team. Mindset Ventures has invested in 9 very interesting companies founded by women and/or that have female c-level executives to date, and we are intentional about continuing to build a pipeline of strong female-founded startups.

Investors and founders of all genders can benefit from understanding how COVID-19 is having an impact on female founders. Here are the key takeaways:

Mindset Insight #1: Investors are now filling their pipeline with diverse founders, but there is still skepticism until the investment dollars follow

The global pandemic, as well as the Black Lives Matter social movement in the U.S., has shined a spotlight on the tech industry’s continuing challenge with funding diverse founders. Our survey showed that both founders and investors see the VC community taking actions to improve diversity in their pipeline, but there is some concern that the dollars are not (yet) following suit.

Toyin Odulate, CEO of Olori Cosmetics noticed that there are “more ears for people to listen and not necessarily by femme-led funds either! The regular male dominated funds are paying attention.”

Many female founders remained skeptical, as they have not yet seen this attention leading to investment dollars. Stephanie Corliss, Co-Founder & COO at SnapShyft said that “it’s been more of the same. It’s always been heavy lip-service from investors — more so from firms and syndicates that espouse a female-centric thesis,” but investors have not necessarily committed significant investment dollars to female founders. Odulate at Olori Cosmetics agreed by pointing out that “there is a lot of talk on propping female founders up, but I’m not yet convinced that they are sincere and making any real impact YET.”

The industry will be watching closely to see if the dollars committed to diverse founders follow the public statements being made.

Mindset Insight #2: Investors are defaulting to existing relationships, which hurts female founders, but there is an opportunity to develop new relationships digitally

Lisa Carmen Wang, Founder of The Global League of Women (GLOW) also highlighted the newfound attention from investors; “I’m encouraged as more investors are realizing they must be more vocal about their stance towards providing access to women and minorities. It’s an unprecedented time, and as such an opportunity to change behavior and even the playing field.” However, she also noted that “in some cases systemic biases may be magnified if VCs default to pattern recognition to fund the entrepreneurs they already know.”

“It’s an unprecedented time, and as such an opportunity to change behavior and even the playing field.” (Lisa Carmen Wang, Founder at GLOW)

Jessica Straus, Venture Partner at Dundee Venture Capital and Kaufman Fellow agreed that investors are “focusing on entrepreneurs they already know or companies already in their portfolio. Overall, women lose in this scenario. Women-led companies represent the smallest portion of venture capital portfolios and tend to be left out of VC pipelines.” However, she noted that female founders and some investors are finding ways around this. “The bright spot is the ingenuity of female founders and the investors who consistently build new relationships with them.”

As investors take more time to develop new relationships virtually, female founders can benefit from creating an online brand. “Deals may take longer to close, because it feels like investors want more touchpoints with founders because they miss the inperson meetings,” said Katie Palencsar, Investor & Venture Studio Lead at Anthemis Group, a New York and London-based fund. As a result, she notes that “online presence is super important for founders as investors want to learn as much about the founders as they are not getting the opportunity to meet in person.”

Straus at Dundee Venture Capital was also optimistic. “Women founders are leveraging the disruption of COVID to create value. Those I have met responded quickly to the crisis by developing new products and services that meet new demands.” She confirmed the benefit for an online brand, stating that female founders “are using social media and their networks to expand their access to customers and investors. They are seizing the chance to do something new and to do it better, even under the constraints of COVID.”

Investors are also increasing their reliance on quantitative data to make decisions, as well as opening new channels to connect with founders that might not otherwise be in their network. One investor mentioned that “We lean more on metrics and objective data to reach analysis on businesses we will or won’t fund.” And she added, “I’m hearing [more examples of] alternative outreach which allows nontraditional connections.”

Others see virtual meetings not as a replacement for in-person meetings, but as one way to start developing relationships until face-to-face (F2F) meetings return. “F2F is still important to build relationships” according to Hila Goldman-Aslan, CEO & Co-Founder of DiA Imaging Analysis, a Mindset Ventures’ portfolio company, “but this crisis helps to get more [initial] conversations by Zoom to build the foundation.”

Mindset Insight #3: The shift to fundraising virtually is an opportunity for investors and founders to connect in different ways

VCs invest in people, especially at the early stages, and face-to-face meetings have always been an important part of the process to build relationships. But quarantine has required a shift to virtual fundraising for all entrepreneurs — male and female.

The in-person relationships serve to build trust, but in a virtual world this is more difficult. However, investors are adapting. “There are proxies for trust-building, like increasing reference checks from current and former investors, team members, market experts, employers and competitors,” said another investor.

One benefit for founders is that they no longer have to travel or move their company to San Francisco or Silicon Valley to meet with potential investors. This presents an opportunity for typically underrepresented founders, says Palencsar at Anthemis Group. “With investors traveling less and Zooming into meetings with founders, it will become less and less important for startups to be physically located in Silicon Valley. This could potentially open up the tight knit ecosystem of Silicon Valley enough to see more capital going to more diverse founders… but for many VCs this mindset shift will be an adjustment.” Anthemis is leading by example by adapting their strategy for female founders during this time. Palencsar noted “we intentionally created a virtual strategy with a Female Founder Office Hours and video series, and we also staffed up to support female founder fund and initiatives.”

In this aspect, Camila Folkmann, Co-Founder & Partner at Mindset Ventures, emphasized “at Mindset, virtual pitching has always been a part of our due diligence process mainly because we have partners in 3 different countries. But the main point is that we have never made a difference between male and female founders pitching to us — maybe because I have always been on the investment committee and our male partners are strong allies, so unconscious bias was not an issue. We certainly have brilliant female founders leading some of our portfolio companies, but this was not the result of any intentional efforts. But now we started tracking diversity metrics in our pipeline and are actively reaching out to new channels to diversify our inbounds.”

Another benefit of virtual pitching is that it can level the playing field for founders who may not be able to, or want to, participate in the social networking component that has traditionally been required for fundraising. Corliss at SnapShyft notes that “limited in-person interaction forces all genders to compete on merit more so than with the aid of alcohol, food, entertainment.”

“Limited in-person interaction forces all genders to compete on merit.” (Stephanie Corliss, Co-Founder & COO at SnapShyft)

Developing relationships virtually can be challenging, but it also presents an opportunity for female founders as the barriers to contact investors have been lowered

Mindset Insight #4: The balance of personal and professional responsibilities is more of a conversation, with a greater appreciation for the unpaid labor shouldered by women

With business meetings now mostly conducted via videoconference calls from home, often including unintentional appearances from children and pets, it is more common to discuss personal responsibilities as part of an investment conversation.

Women have always shouldered more of the unpaid labor of housework and childcare, and this is increasing during the pandemic. Axios reported that “per a recent Morning Consult poll conducted for the Times, 80% of mothers say they’re doing “Limited in-person interaction forces all genders to compete on merit.” Stephanie Corliss, Co-Founder & COO at SnapShyft September, 2020 most of the home-schooling, 70% say they’re handling the bulk of the housework, and 66% say they’re responsible for all or most of the child care.”

However, female founders have been balancing this forever, and male founders are now starting to do the same. “COVID has generally impacted the views that women are the ones tied-up at home tending to the children, schooling/e-learning, meals/dishes, laundry, etc, and they must not be able to devote themselves fully in the startup. This is patently FALSE!,” said Stephanie Corliss at SnapShyft. She notes that “being the mother of 5 little ones while working full time (70 hours/wk) on our startup…proves their [previous] notions of what a female entrepreneur can accomplish to be so very wrong.” There is generally a greater appreciation for this balance in a post-COVID world.

Virtual fundraising can also be an asset for female founders. Sarah Haggard, CEO & Founder of Tribute, said in a recent interview to Geekwire that she was able “to raise while pregnant without it being a point of conversation (or worse, a discriminating factor)”. She also added that pitching through video calls saved her time and money not having to travel.

In additional to childcare, COVID-19 has highlighted the need for self-care. One of the founders expressed that the biggest lesson she learned from the pandemic is that “taking time for myself is as important as every second I spend on the business.”

Mindset Insight #5: More women investors lead to more funding for female founders

In an industry where 65% of U.S. VC firms still do not have any female partners, according the study released by All Raise earlier this year, for female founders to succeed, this must change. One factor is that women VC partners invest 2x more in female founders than their male counterparts, according to data published by Kauffman Fellows in March.

The biases, implicit and explicit, toward female founders have been an impediment that is hard to quantify in an industry driven by nuance and “gut” feeling, but most female founders know it to be true. There is “a substantial difference between results from my male co-founder’s investment efforts and mine,” said Corliss at SnapShyft. “He is able to quickly get further in the process than what I have experienced over the last 3.5 years.” With more women on investment teams at venture capital funds, this is slowly changing.

“We are capable of meeting people, making investments, hiring team members, and launching entire companies; even under the constraints of COVID.” (Jessica Straus, Venture Partner at Dundee Venture Capital)

“As a former founder who started two companies with all female founding teams, I felt it acutely when there were no women on the investment team of VC funds we were pitching,” said Jules Miller, Partner at Mindset Ventures. “When pitch after pitch to all male investment teams went nowhere, I realized that we never really had a chance of receiving an investment, so we stopped pitching funds that didn’t have at least one woman on the investment team.” Most female founders learn this the hard way as they do not initially consider the composition of investment committees when choosing investors to pitch to, but eventually they realize that this is an important factor.

For Miller, “this is also why I decided to move to the investment side, as this is where I think I can have the biggest impact. I make a huge effort to ensure our pipeline is full of women, people of color and other non-traditional founders. This is absolutely not done for social impact and I get frustrated when people frame it as such — diverse founders represents a massive investment opportunity and it’s one where we have an advantage at Mindset Ventures with women representing half of our partnership.”

There continues to be positive momentum in favor of diversity and inclusion in the startup and venture capital worlds. New data published by Axios in July shows an increase in the number of women sitting in investment committees of U.S. VC firms.

Another positive outcome was the recent announcement by ten VC firms, including Greycroft Partners, First Round Capital, SVB Capital and others, to include “diversity riders” in term sheets that encourage the addition of underrepresented investors to cap tables.

Those are all steps in the right direction, but we still have a long way to go. We look forward to seeing how these new initiatives play out in practice, and plan to lead by example in our own efforts at Mindset Ventures.

Mindset Insight #6: In difficulty lies opportunity

While COVID-19 is presenting enormous challenges to founders, especially as they fundraise, as Albert Einstein stated, “in the middle of difficulty lies opportunity.”

With women hit harder by layoffs, according to data published by the Bureau of Labor Statistics, more are leaving to start their own businesses or grow them faster. “The economic climate has prompted more female founders to go “all in” on launching their businesses and raise capital earlier than expected or more capital for longer runways,” says Palencsar at Anthemis.

In addition, female founders who have already started their businesses are learning valuable lessons. Odulate at Olori Cosmetics states that the single most important thing the crisis has taught her is “to keep doing the work no matter what. To fine-tune your strategy and stay agile and ready to adapt at the drop of a hat.” Similarly, Corliss at SnapShyft highlighted the lesson to “build in more diversification of revenue streams!”

There are also silver linings from the challenging economic environment. For example, another founder has seen the opportunity “to be able to hire some amazing people from all the layoffs that have happened elsewhere without having the huge funding round to get the target hires to take notice of your company.”

The bottom line is that we are living in a time where changes are necessary to survive and thrive, and the VC industry must adapt to this new world. As Straus of Dundee Venture Capital pointed out, “we have to keep going and push the boundaries of what we thought was possible. We are capable of meeting people, making investments, hiring team members, and launching entire companies; even under the constraints of COVID.” COVID-19 has accelerated many processes, impacted many industries and made us open our minds and eyes to envision a more diverse and inclusive world.

“Anybody who doesn’t change their mind a lot is dramatically underestimating the complexity of the world we live in.” (Jeff Bezos)