In-depth: Female-led startups make strides, but venture funding lags

Data shows that women control the bulk of healthcare spending in the U.S., which has given women the nickname ‘chief medical officer’ of the family. However, when it comes to digital health, only 14% of deals were closed by women-led digital health startups in 2019, according to Rock Health.

While women-led companies have made strides in the digital health world, these companies often struggle to secure funding from the male-dominated venture world. Recent reports demonstrate that female led startups are more likely to be bootstrapped, and less likely to be venture-backed than male-led digital health companies, which can lead to major hurdles for early-stage companies.

“Women control more than 80% of the U.S. healthcare dollars, and we make the healthcare decisions on behalf of our, children, partners, parents and of course ourselves. What this means when we think about digital health and leadership, women as founders, women as funders, we need to be building for the most powerful customer in healthcare, and that is by in large women,” Carolyn Witte, CEO of Tia, told MobiHealthNews.

“We think when we bring more women into decision-making roles, leadership roles, creative roles, and give female founders the same access that male founders have, we can build a healthier system that works better, not just for women, but for everyone.”

Women founders often discuss the challenges of getting the attention of the male-dominated VC industry. In fact, in 2019 women only made up 12.6% of partners at venture funds active in digital health investing, according to that same Rock Health report.

“It’s been particularly difficult for female founders, especially female founders in the women’s health-segment fundraising,” Maria Velissaris, managing partner at SteelSky Ventures, told MobiHealthNews.

“The issue lies in phenomenon called pattern matching. People tend to invest in those that remind them of themselves. According to a Fast Company article, 40% of VCs are white men who went to Harvard and Stanford. And 80% of VCs are white and Asian. So that’s the interesting insight here.

“So, if we know people tend to invest in people that are familiar and are from certain types of networks and backgrounds, then we can understand why the majority of investors are not investing in female-founded companies.”

A different perspective 

Carolyn Witte, CEO of women’s digital health company Tia, said that having a female perspective can be an asset, especially when it comes to focusing on women’s health.

“I’m a unique breed in that I’m a female founder that is building a healthcare company for women. I think it is important to recognize that women can be amazing founders regardless of if their customer is also female,” Witte said.

“That said, with respect to this particular issue there is an authenticity of founder that I think is really, really important. If you look at women’s health, not even just digital health, but women’s health, a majority of the companies in women’s health are founded by men.

“I think in my opinion there is a little bit of a discount between the product and the nuanced understanding required by a founder to build a compelling solution that is deeply, deeply understood, more so on a level [where] you experience the problem itself.”

The demographic disconnect between female-led founders and the majority of VCs can translate into misunderstandings. However, education can play a key component in fixing this issue.

“In particular, being female-focused and having roots around contraception, we definitely got a lot of questions – I’ve gotten a lot of questions from investors around basically the nature of contraception. One of the first assumptions that people made, and make continuously, is that aren’t people on contraception forever? 

“A lot of men … don’t understand how it works. They don’t understand that some people might be on contraception sometimes, and then go off of it other times,” Varsha Rao, CEO of Nurx, told MobiHealthNews.

While funding can be a challenge, both Rao and Witte have found success. Nurx has raised over $113 million in funding and Tia closed its $24 million Series A funding round in May of last year.

“I think the most important thing you can do in the early stages of building a company is to be product-obsessed, and to find conviction, not in investors, but in your users and your customer.

“If you believe what you are making, and know in your core, the product and business is wanted. Investors aren’t the audience that matters. Your customer is,” Witte said.

Knowing the market landscape is also key for pitching young startups.

“I think what female founders really need to do is make sure they are understanding their financials. When you go into these VCs that don’t identify with the problems you are solving, you need to talk to them in terms of economics and the economic benefit and opportunity,” Velissaris said.

While women-led startups are less likely to be venture-backed than their male counterparts, some demographics are more impacted by this than others.

A Rock Health report found that Black-women-led startups are the most likely to be bootstrapped for cash. In fact, 57% of digital health companies led by this demographic reported being bootstrapped, compared to just 10% of white male-led startups.

“By having a diversity of gender, socio-economic status, race, you are going to make better decisions and understand what the market truly wants. If you are a homogenous group of people that all went to the same school, have the same networks, all the same experience from all the same environment, you are going to be narrow in how you view the world, and that is going to affect the types of investments that you make,” Maria said.

The future of digital health 

So, what’s next for the future? Maria said it’s important for investors to take a deep dive into their portfolio and identify any gaps.

“What I think would be important in the future is for VCs to be able to make sure they are holding their investors and investment committees accountable for investing in diverse companies.

“The only way I think we can create change or a way to create institutional change is to look at the metrics. Look at your portfolios and say ‘OK, how many people are men? How many people are women? What kind of ethnic diversity do we have?’ and really start holding people accountable. Because we are not going to be able to move forward.

“It’s also better for your own portfolio to be addressing different needs of the population,” she said.

Money isn’t the only challenge female founders are facing. Support can also be lacking. Velissaris said that the coronavirus pandemic has put strains on women founders’ personals lives, as well as professional lives.

“Everyone is spread out. Everyone has been isolated. Finding a community of like-minded people who are going through the same types of experience that you are can be very helpful,” she said.

“Not only somebody to vent to at the end of the day and somebody to walk through challenges with, but also just from a mental health perspective. Just saying, ‘You know what? It’s been really hard, this has been really hard.’ It’s not only challenging from a professional perspective, but a personal perspective. Women are not only dealing with things going on in the workplace or building your company. You are also dealing with new challenges at home,” she said.  

Witte said that founding a business can be lonely, and support networks are key for helping to overcome this.

“Part of that means mentorship. It’s at times thinking about how we cannot create double standards, but recognize that leaders may look different, may act different, may sound different in creating new kinds of standards and praise for different types of leadership that may be different than the male leader we are all accustomed to, whether we like to admit it or not,” Witte.

Today more and more female led startups are coming onto the scene. Maria said that it’s important not to get discouraged.

“I want to encourage all women founders to be strong, have convictions and follow your dreams,” Velissaris said.  

“So many people told me, time and time again, you can’t start a company. You don’t know what you are doing. You’re too young, you’re too Black, you’re a woman. This isn’t for you. Women don’t know finance.’

“Take all of that and use it to fuel your growth and fuel your success. Don’t take no for an answer. Continue to knock down boundaries and continue to follow your dreams.”

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