Whether they are VCs or founders, women identify market opportunities that men overlook. The women’s health and wellness sector has grown significantly over the past few years. Female investors and founders prove that there is a significant return on investment (ROI).
Still, words like vagina make many male VCs cringe and shut up when they realize the possibilities.
“Women-focused health and wellness investments represent only about 2% of all healthcare investments,” said Jessica Carr, general partner at Coyote Ventures, which invests in women’s health and wellness, an underinvested sector.
Market conditions in 2022 presented headwinds. In 2022, appetite for venture capital weakened from the highs of 2021. The share of deals and dollars going to female founders also declined from previous records.
So how can small, emerging female venture fund managers raise money? By turning to an untapped source of funding: accredited women investors.
Carr began his career at Impossible Foods in research and development when the company only had about 12 people. Before she left, she saw it grow to several hundred people. “I saw the impact of raising multiple rounds of venture capital on the company’s trajectory and its ability to scale,” she exclaimed.
Wanting to see how else she could make an impact, Carr left to go to business school. After graduating, Carr became a consultant to early stage companies raising venture capital. “I saw firsthand the problems that female founders had [raising funding] compared to male founders,” she said.
“[It forced female founders] to be humble and weak,” Carr said. “They had a lot of operational experience and were more likely to roll up their sleeves and do things that their male counterparts didn’t have to do because they had the luxury of money.”
To further expand her experience, Carr joined a gender-focused family office that wanted to start a venture capital fund. When she started seeing people in her network start funds, she jumped in too. In 2021, she started Coyote Ventures.
Coyote focuses on innovative women’s health and wellness in the consumer and digital space that does not require FDA approval. The venture capital fund is not only looking at conditions that only affect women, but also those that disproportionately affect women, such as mental health. Or conditions where symptoms differ between the sexes, such as heart disease.
An example of a portfolio company is Maude, a sexual health company.
Market forces have made raising venture capital more accessible. In 2018, the Regulatory Assistance for Economic Growth and Consumer Protection Act was passed, allowing funds of $10 million or less to increase the number of accredited investors from 99 to 249. The change spurred a surge in venture capital funds launched by women.
Nearly three-quarters of accredited female investors would write a check for $25,000 to become a limited partner (LP) in a venture capital fund, according to How women (and men) are investing in startups.* But there is a perception that investing in venture capital like LP is only for the ultra-rich.
“Companies like Carta have innovated by making capital formation more accessible,” Carr said. “There were also boosters for [emerging] fund managers,” Carr said. “VC Labs helped me figure out fund size, narrowing down [investment] thesis and identifying who in my network to focus on for the first close.”
In 2021, the tailwinds helped demonstrate the opportunities for investment in women’s health. Kindbody and Maven Clinic raised large cartridges and Maven became a unicorn. Modern fertility is acquired. In 2022, the overturning of Roe demonstrated the passion and need for women to focus on their health.
But small emerging female founders have also faced headwinds. Compared to last year, venture capital investment fell sharply for the first three quarters of this year by 22% for dollars and 11% for deals, according to the Q3 2022 PitchBook-NVCA Venture Monitor.
The share of dollars raised by companies with at least one female founder fell from 18.6% in 2017 to 17.2% in 2022. For female founders alone, the share fell from 2.7% in 2019 to 1.9% in 2022. The share of deals for companies with at least one female founder fell from 26.4% in 2021 to 25.5% in 2022. For only female founders, the decline was from 6.8% to 6 .7%.
Small, emerging female fund managers face additional challenges compared to their white male counterparts. As first, second and even third time fund managers, they may be too early stage to build experience. Institutional investors, in particular, want fund managers to have traditional expertise in the sector they are focused on. Excellent experience as an operator or consultant is not part of their due diligence formulas. Many make significant investments of tens of millions—if not hundreds of millions of dollars—and would pile up small funds.
As a first-time fund manager, most of Coyote’s LPs are accredited investors, though not all. Bank of America is the largest institutional investor. They look for partners and acquisition targets and use different criteria to evaluate investments. Payer or provider networks are examples of other types of companies that would be an excellent strategic fit for Coyote.
Coyote also has investments from family offices such as The Case for Her and Tripple.
During this market downturn, Karr finds it important to educate potential LPs that healthcare and consumer goods investments are less likely to be affected by the downturn and that female founders are more resilient. Female founders had lower burnout rates, more significant early-stage valuation growth and lower late-stage valuation declines than all-male firms, according to All In: Women Founders in the US VC Ecosystem.
Venture capital should be more accessible to accredited investors, especially women. Women’s long-term investment style, spreading risk by buying diversified funds and trading less often than men can lead to good returns. Depending on their risk tolerance, investment goals and passion, allocating a small portion of women’s portfolios to invest in startups can be attractive.
Investing in venture funds would be more accessible if the number of investors increased from 249 to 499 for micro funds and the fund size increased from $10 million to $50 million. Increasing the number of accredited investors in small, emerging, diversified funds will allow them to accept checks of $25,000 or less. Raising the fund size cap allows the fund to be sustainable before it starts distributing fund profits.
In which sectors do you see market opportunities?