What Gets Funded Decides What Gets Made: Raising VC For Female Founders
The 8th of March 2022 marked International Women’s Day. The theme was #breakthebias, a time to imagine a gender-equal world free of bias, stereotypes and discrimination. Corporates and startups alike celebrated women’s achievements against the odds. However, it’s also a time to reflect on the many barriers women still face in the workplace, in the tech ecosystem, as startup founders and beyond.
One of the most significant barriers for female founders remains access to capital. This issue has long impacted female founders worldwide. In 2011, female-founded companies received just 1.2% of all European VC investments. By 2020, this total had grown to 2.2% before falling to 0.7% in 2021, the lowest point in at least ten years. This drop in 2021 comes in the middle of a European VC boom, where European and Israeli startups raised about $116.4B last year, a nearly 120% increase from 2020. The more intersections women have, the more barriers they face in accessing capital. Black women have, to date, received only 0.02% of VC funding.
Reasons for the Funding Gap
As a female founder currently fundraising, I’ve done a lot of research into the potential challenges I might face in accessing capital to grow my business. Of course, it is a very complex topic that won’t be resolved overnight, but to improve the landscape, we have to understand the “why.”
Firstly, many of the initiatives created to improve chances for women have focused on providing women with mentorship, masterclasses and networking rather than focusing on the structural issues within the VC system. For example, as stated by the founder of Olio, Tessa Clarke, discussing the recently announced “200 Billion Club,” a new mentoring program to tackle underinvestment in female founders:
“I’m not convinced that the ‘200 Billion Club’ will have any meaningful impact in shifting the meagre amount of investment [to] female founders. Why? Because the focus of the 12-week programme is on ‘getting participants pitch-perfect and VC investable.’ [It] clearly implies that the root cause of the problem lies with female founders not being up to scratch, rather than the VC industry being structurally biased.”
Secondly, some structural challenges are rooted in the gender imbalance at top venture capital firms in Europe. For example, BVCA’s 2021 Diversity & Inclusion survey revealed that only 10% of senior roles in VC were occupied by women, 20% of mid-level roles and 33% of junior roles. The concentration of women in more junior roles means that significantly fewer women have the power to actually write cheques. Furthermore, when we explore intersections, only 3% of senior women in VC are minorities (1% black, 1.6% Asian and <1% multi-ethnic or mixed). These imbalances need to be addressed if we hope to create a level playing field for female founders.
The final piece of this perturbing story is that female-only founding teams start fewer companies in the first place. In 2011, female founders in Europe made up 2.5% of businesses founded, compared to 4.6% in 2021. Part of this challenge lies in the lack of representation of female business owners in Europe. The fewer women get access to capital, the fewer women can grow their businesses to their full potential.
Investing in Female-Led Startups Makes Business Sense
From a purely business perspective, investing in women-led companies doesn’t only do greater good for people and the planet; it also helps the economy and, ultimately, the markets. An IFC report suggests that women-owned businesses are transforming local and global markets. Firms run by female CEOs even do better in the stock market, according to S&P Global. Highlighting that female-led companies that do manage to break through this unjust system outperform the market in terms of median revenues at later stages.
There are also millions of ideas we are missing out on simply because VCs are not backing them. Without accessing capital, female-led teams are much more likely to have to balance a full-time job on the side of their business, bootstrap to get to the next milestone and, quite frankly, burnout underneath the pressure of a system that is failing to see their true potential.
Raising capital allows companies to employ more people, scale globally and reach more customers. In addition, female-led teams taking their businesses to the next level by raising external capital allows more women to later become angel investors and write cheques to more female-led teams. But first, we need to break the cycle.
Financing is one of the most important factors for a successful business along with a good business plan. If you want to explore more funding options here is an article on alternative ways to fund your business.