In today’s startup ecosystem, supporting women-led startups has become more crucial than ever. Despite the growing number of female entrepreneurs, women-led startups still face significant funding disparities compared to startups founded by men.
According to a recent study by PitchBook, female-founded companies received only 2% of the total venture capital (VC) funding in 2023 throughout the United States and Europe. This article will explore a few of the best types of investors available to women-led startups, including friends and family loans, angel investors, and venture capital firms. By understanding the funding landscape and the resources available, female founders can make informed decisions and secure the capital they need to bring their vision to life.
Investors for Women Entrepreneurs
It’s no secret that startups need capital to grow their businesses. Choosing the right funding source for a startup depends on the needs of the company as well as potential additional resources, such as mentorship or network connections, available from the investor of choice. These are the top three types of investors for women-led startups to consider.
Friends and Family Loans
One common source of early stage funding for startups is friends and family loans. These loans typically come from individuals close to the founder, such as relatives or friends, who believe in the entrepreneur’s vision and want to support their endeavor. Friends and family loans can be a good starting point for women entrepreneurs because they often have more flexible terms and lower interest rates than traditional bank loans.
However, it’s essential to approach friends and family loans with caution. Mixing personal relationships with business can be tricky, and it’s crucial to establish clear expectations and repayment terms to avoid potential conflicts. Women founders also should be aware that relying too heavily on friends and family funding may limit their ability to attract other investors in the future.
Pros of Friends and Family Loans
- Friends and family investors are more accessible and familiar for entrepreneurs, making them easier to approach.
- Friends and family investors often provide more flexible terms and repayment options, allowing women-led startups to allocate more resources toward growth and development.
- Unlike business bank loans, there’s no credit score needed.
- Entrepreneurs are sometimes able to expand their network by gaining valuable introductions through friends and family investors.
Cons of Friends and Family Loans
- Mixing personal relationships with business can lead to awkward situations, strained relationships, or even legal disputes if expectations and repayment terms are not clearly defined and upheld.
- It can be difficult to ask friends or family members for financial assistance — especially if they’re not entrepreneurs and find it difficult to see your vision.
Angel Investors
Angel investors are high-net-worth individuals who invest their own money into early stage startups in exchange for equity. They often have experience in the startup world and can provide valuable mentorship and industry connections in addition to financial support. Angel investors typically invest small amounts compared to VC firms, ranging from a few thousand to a few hundred thousand dollars.
For women-led startups, angel investors can be a valuable source of funding and support. Many angel investors actively seek to invest in diverse founders and may have a particular interest in supporting female entrepreneurs. Women founders can find angel investors through networking events, online platforms like AngelList, or by joining women-focused entrepreneurial communities.
Pros of Angel Investors
- Angel investors can provide substantial funding to help women-led startups grow and scale. They typically invest larger amounts than friends and family, but smaller figures than VC firms.
- Many angel investors have entrepreneurial experience and industry expertise, offering valuable mentorship, strategic advice, and guidance to help female founders navigate the challenges of growing a startup.
- Angel investors often have extensive networks in the startup ecosystem, which they can leverage to make valuable introductions and connections as well as access new opportunities, partnerships, and resources.
- Some angel investors actively seek to support and invest in women-led startups.
Cons of Angel Investors
- They will usually request equity in your company.
- These investors will have a say in the direction your company takes — especially if they take a board seat.
Top Angel Investors for Women-Led Startups
Here are some angel investors to consider if you’re a female entrepreneur looking for funding specifically tailored for women-owned businesses.
Astia Angels
Astia invests in high-growth, women-led companies through three funds: Astia Fund, Astia Edge, and Astia Angels. The firm has invested in more than 130 companies, boasting 10 exits, and provides both capital and network support to investment companies.
Chloe Capital
Chloe Capital invests in women-founded and women-led startups with more than 45 companies in their portfolio. Additionally, Chloe Capital offers a myriad of accelerator programs in cities across the United States for founders to learn and grow their businesses.
Female Founders Fund
Female Founders Fund actively invests in women-led startups in the climate tech, healthcare, beauty and personal care, vertical software solutions, and generative artificial intelligence (AI) industries. The fund provides much more than just funding, however. They also offer robust network and mentorship opportunities for their investment companies.
Venture Capital Firms
Venture capital firms are professional investment companies that provide funding to high-growth startups in exchange for equity. VC firms typically invest larger amounts than angel investors — often in the millions of dollars — and focus on startups with significant growth potential. In addition to funding, VC firms often provide strategic guidance, mentorship, and access to their extensive networks.
However, securing VC funding can prove challenging for women-led startups. As mentioned earlier, female-founded companies receive a disproportionately small share of the total VC funding. To increase their chances of success, women founders should focus on building relationships with VC firms that have a track record of investing in diverse founders or have female partners on their investment teams.
Pros of Venture Capital Firms
- These investors can provide significant amounts of funding — often in the millions of dollars — that enable women-led startups to scale rapidly, expand their teams, and accelerate product development and market expansion.
- VC firms offer valuable strategic guidance and mentorship to help women founders make data-driven decisions, refine their business models, and navigate the challenges of rapid growth and market penetration.
- VC firms have extensive networks in the startup ecosystem, including connections to potential customers, partners, and industry experts.
- Securing VC funding can provide strong validation and credibility for a woman-led startup, attracting media attention, top talent, and additional investors.
Cons of Venture Capital Firms
- VC firms often seek significant equity in exchange for their investment, which can lead to a loss of control and decision-making power.
Top Venture Capital Firms for Women-Led Startups
These venture capital firms are dedicated to investing in women-founded and women-led startups in a variety of industries.
BBG Ventures
BBG Ventures is an early stage VC firm that invests exclusively in startups with at least one female founder. Founded by Susan Lyne and Nisha Dua, the firm focuses on companies in the consumer tech, marketplace, and enterprise software sectors. By providing funding, mentorship, and strategic support to women-led startups, BBG Ventures aims to create a more equitable and diverse startup ecosystem while backing the next generation of groundbreaking female entrepreneurs.
Amplifyher Ventures
Amplifyher Ventures is a venture capital firm that focuses on investing in women-led startups in the technology and consumer industries. Founded by Tricia Black, the firm aims to bridge the funding gap faced by female entrepreneurs and provide them with the capital, mentorship, and resources they need to succeed.
Forerunner Ventures
Forerunner Ventures is a VC firm that specializes in investing in early stage companies in the consumer and retail industries. Founded by Kirsten Green, the firm has a strong track record of backing successful women-led startups, such as Glossier, Outdoor Voices, and Away.