In 2018, BCG published research that outlines an important conclusion: Women-Owned Startups Are a Better Bet.

The difficulty with this fact is that female entrepreneurs are not only under-represented, but dramatically underfunded.

While the number of deals completed by female founders is growing, in 2018, the amount of funding received stayed stagnant at just 2.2% of $130 billion in VC funding. Recent data also reveals, when given that funding, female CEOs pay themselves less.

The BCG research takes a hard look at why female-founded startups receive a fraction of all venture capital funding, but are statistically more successful – despite raising less money. One of the biggest takeaways of the research is that roughly 92% of the partners at the biggest VC firms in the US are men.

A study published by Forbes found that 78% of startups considered networking to be a vital part of their success. At MassChallenge we consider connectivity and collaborative ecosystems to be a key structure in a startup’s evolution. With our resources, we help expand our entrepreneurs network by providing access to recruited mentors, top corporate partners, investors, and perhaps most importantly – each other.

Two Female-Led Startups Generate Pre-Revenue Funding

We recently learned of a prime example of the power of alumni helping alumni, specifically when it comes to female founders sourcing VC funding.

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Recently, a MassChallenge 2015 alum, Allergy Amulet, received early-stage funding from Great Oaks Venture Capital. After this successful relationship, the CEO and founder of Allergy Amulet, Abigail Barnes, introduced Great Oaks to Meridith Cass, the CEO and founder of Nix, also a fellow MassChallenge alum. After the introduction, Great Oaks, in turn, invested in Nix.

Given the continually changing and nuanced dynamics of early-stage and pre-revenue startups with VC firms, we caught up with Abigail and Meridith to share their experience in sourcing funds and what they see as a shifting landscape in early-stage financings.

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The two entrepreneurs share similarities on their technology and mission.

Allergy Amulet is a fast and portable food allergen and ingredient sensor that offers wearable and non-wearable options.

Nix is a wearable, sweat-based biosensor that monitors hydration levels for the likes of athletes, laborers, and soldiers.

Interview: Insights from the Entrepreneurs

You both were in the 2015 MassChallenge Boston cohort. How did you initially meet? 

Abigail Barnes (AB): There were a few different female-founder showcases, and I believe that’s where we first connected.

Meridith Cass (MC): Yeah, we both had a lot in common. Both essentially full-stack, hardware and software, both pre-revenue, and both female founders. I don’t like to think of us as having  three strikes against us when it comes to fundraising, but it does sometimes feel that way.

Can you share with us some of the hurdles and struggles that generally exist in sourcing funding for your startup stage?

AB: I see a lot of early-stage VCs make statements like, “We invest in great founders with big ideas and breakthrough technology” then you meet with them and the feedback is often, “Oh, you’re pre-revenue? Sorry, come back to us when you have sales.” This didn’t used to be the case – I’d say it’s really only been in the past couple of years that early-stage funds have started investing more like growth-stage funds.

MC: Yeah, the definition of “early stage” is changing and evolving. I think we’re in a time now where investors are hyper-focused on chasing unicorns, leaving an ever-widening gap for early-stage startups that either aren’t in that category or that have huge growth potential but no revenue yet.

As venture funds raise larger and larger funds, portfolio economics require that they cut larger checks. I’ve talked to many VC investors who say they’re interested in early-stage, but then say the minimum investment is around $5M. And I’m only trying to raise at most $3M in this round.

AB: Yeah, a lot of it just boils down to basic math. The venture math is not working for a lot of early-stage founders right now.

MC: Yes, and I think that creates the challenge for us to find the investors that truly do have an interest in this stage and write checks in the range we’re targeting. It’s really made Nix focus on what might be considered micro VCs—the $25M-$100M fund size is our sweet spot.

AB: I can’t tell you how many angel investors I’ve spoken to over the years that have asked me to come back to them once we’re on the market. It’s unfortunate because that mindset is causing a lot of innovation to die in the idea stage. It sends the message that if you have a good idea, solid founding team, and a huge market opportunity, that’s no longer enough—you better have a trust fund too.

What do you think are some of the obstacles female entrepreneurs specifically face in funding? Or that you’ve encountered in your own experience?  

MC: The hard thing is that it’s impossible to measure, you know? There’s no way for me to know when I get a “no” how much of it has to do with my gender.

AB: Agreed, it’s really hard to know.

I think there’s definitely an element of “mirrorocracy” at play—the idea that people want to invest in themselves—and want to invest in someone who looks like them, talks like them, and has the same interests and expertise as them. They want to be confident in where their money is going, and so are subconsciously looking to put money into individuals they see as extensions of themselves. I think I’ve only ever met two VC partners that were women and attorneys (like me).

MC: I was also just reading that Harvard Business Review article about how investors typically ask female entrepreneurs different questions than their male counterparts. With men, they ask what are categorized as “promotion questions,” which asks to paint a broad, glossy picture of what is possible. The questions they ask female entrepreneurs are more prevention questions, like “why have you come to x conclusion?” or “How come you have x metrics?” Basically, putting female entrepreneurs in the position to defend their vision as opposed to painting that lofty vision.

Can you tell us the story of how you both came to partner up with Great Oaks Venture Capital and a bit about their investment philosophy? 

AB: I was connected to Great Oaks by another female-led startup. We had a few early-stage VC funds on our cap table before they joined, but Great Oaks is the most recent fund.

Great Oaks’s whole thesis, which one of the partners relayed the other week, is that they invest in “great founders at Pre-Seed, Seed or Series A, with great traction, in an emerging space, and with a great plan.” They don’t do huge investments, but a decent size check. And they have an impressive portfolio, including companies like Allbirds, OK Cupid, Recess, and Warby Parker. They were sharp, asked great questions, and carried out due diligence quickly, efficiently, and in proportion to the check size.

After the initial investment, I connected them with Nix and Meridith. Paying it forward.

MC: And I in turn have already mentioned Great Oaks to another full-stack, female-led startup, who is in an entirely different space, but still early-stage.

Do you have any advice for other female entrepreneurs? Or pre-revenue startups?

AB: I’ve found a lot of success going through other founders—particularly if their company is in a similar space or is a good comp. I try to find companies similar to ours, either in sensor tech, wearables or allergies, and then see where they received their funding. I also look at when and at what stage those financings occurred, because VCs and definitions, as mentioned, are in flux. I then look for warm intros. Founder intros can often be the most valuable ones.

MC: I also think when we talk about network and leveraging your network, Abigail and I connected on a real level, we have a genuine relationship, not just on a more superficial level. So, I’d say really look for those relationships and take advantage of opportunities to form and foster them.