Female-founded companies will save our economy. Here’s why

The first wave of COVID-19 closures in March came just two months after I had moved my mum in to live with me and my family. She had been diagnosed with terminal cancer in December. Upon hearing the heartbreaking news, I decided to move her from California to Colorado, where she would spend her final months under my care and under my roof. This meant I had officially joined the ranks of the sandwich generation.

What it’s like to be a female founder, caregiver, and breadwinner mom during the pandemic

Between the confusion of COVID-19 and caretaking for my mum, the Dow Jones lost a third of its value. As a result, we lost a term sheet for our startup’s next round of funding. On top of that, nearly all our new sales deals were pushed back to later in the year. The outlook was bleak.

I remember sitting in a grocery store parking lot practicing deep breathing to stave off a panic attack. I was concerned because I knew what was coming. I felt pain for the millions of people who would be affected coupled with an obligation to do something about it. I felt like Timothy Geithner’s character in Too Big to Fail. I was watching the world in slow motion knowing that the economy was going to crater in a matter of weeks and how miserable the fallout would be, especially for women and female founders.

As a breadwinner mom for a family of five (at the time, my mum included), I wondered how I would support my family through the months that ensued. Where would I find the grit to keep working tirelessly so that my startup’s shareholders saw a return on their investment?

Traditional funding fails female business owners

The first glimmer of hope came in late March with the passage of the CARES Act and the PPP funding. I called our bank every day to apply for funding, but the funds never came. My startup was too small and is a multi-owner company, so the big banks put us last in line.

I wasn’t the only female founder to miss out on this critical lifeline. In fact, only 5% of the businesses that both received PPP money and decided to disclose the gender of the owner were female owned.

I worked my network between the first and second rounds of PPP money to secure our spot in line. I called everyone I knew. I’m grateful for community banks that didn’t put us last because we were “too small” (i.e., insignificant).

Meanwhile, as I and other founders were struggling to generate cash flow (because the spigot of the economy had been turned off), the venture capital world kept emitting the “preserve your cash” mantra. That’s great advice if you have cash on hand, but it’s not helpful for all the companies that don’t keep vast amounts of cash lying around. It’s certainly not useful advice for female founders who receive such trace amounts (less than 3% in 2019) of venture capital to begin with. Or for Black founders who, since 2009, have received .06% of all tech venture funding.

Female-founded companies are a better investment

Despite being vastly underfunded, research has proven again and again that female founders are better investments for venture capitalists and their LPs. Yet, in Q3 2020, funding for female founders dropped by 38% year over year, which means 1% of Q3 venture capital funding went to women. That’s the lowest level it’s been in three years.

To be clear, I’m not talking about male and female founding teams. These types of teams are rife with tokenism, and female founders are there mostly to access wider capital pools directed at female founders. I’m talking about female founder CEOs, where women are in the driver’s seat, calling the shots, and building the business.

My hope is that the Biden-Harris administration doesn’t attempt to shore up female-founded businesses with a watered-down solution where women are simply part of the founding teams. We need capital addressed directly to female-founded companies where women are the CEOs.

A better economic recovery requires investment in women-owned businesses

The free market of venture capital has proven it will not fix this capital-allocation and investment problem. So we need to fix it through targeted policy, and the incoming Biden-Harris administration can lead the way. Our economy depends on it. By using policy to create a competitive marketplace with a level playing field, the new administration can catalyze equitable economic prosperity for all. Female founders are not an act of charity. They are a smart investment in our economic recovery and future economic growth.

As Vice President-elect Harris reminds us, we have to stop classifying “women’s issues” as niche policy verticals. Women are 51% of the U.S. population and must be viewed as equitable partners in driving economic growth.

As I continue to press forward into the new year, I look back at 2020 with mixed feelings. Gratitude for the investments we secured. Grief for the loss of my mum. And above all, steadfast dedication to creating an economy that works for all genders, races, and ethnicities. As President-elect Biden told me in a previous interview:

“The American creed, that we are all created equal, was written long ago. We’ve never fully lived up to that goal as a nation, but we’ve never walked away from it.”

It’s time to live up to that goal. It’s time to realize the American creed. It’s time for women to finally have the freedom to live the American dream by launching their companies with the requisite funding. It is, after all, why my mum immigrated to the U.S. 60 years ago.

Katica Roy is the founder and CEO of Pipeline Equity.