When I discovered that only 2.17% of investment funding in the UK currently goes into women’s businesses it came as something as a shock to me. Even more shocking perhaps that this lack of investment isn’t just in the UK, it’s a worldwide issue, with only 10% of investment going to female led businesses globally and the National Foundation for Women Business Owners, and Wells Fargo & Co finding that despite 38% of USA businesses being owned by women, “only 2 percent of the money invested by venture capital firms goes to women-owned firms.”
In the UK, female founders are the fastest growing segment of entrepreneurs, and have been for a number of years. In 2008, only around 1 in 10 start-ups had at least one female founder, and by 2014, this had doubled to 1 in 5. Despite this huge growth, the investment in these companies continues to lag behind.
Why is there less financial support for women’s businesses?
The reasons for this lack of investment are not clear. Some believe that it could be due to sexism, simply women founders not being taken as seriously as their male counterparts. Another view is that female start-ups aren’t seeking investment as much as male start-ups, and yet another that the process of pitching to investors is historically biased towards men. Whatever the reason, the facts are clear and the need for change startlingly obvious.
The theory that it is the process of pitching for investment itself that is contributing to the gender gap is starting to gain currency. When the pitch process is eliminated businesses run by women appear to have a higher chance of investment. For example Washington, D.C based Village Capital recently eliminated the pitch process entirely from its standard practice. The replacement — a peer-selected investment model — led to about 36 percent of Village Capital’s investments going to women-led companies, which is significantly higher than the national average.
Investing in female-led companies is good for business
When the venture capital firm First Round Capital looked in detail at 300 of its portfolio companies and almost 600 founders, in September 2015, it found something that really hit home; it’s more profitable to invest in women’s businesses. Those companies with at least one female founder performed 63% better than those that had only male founders. These results aren’t unique to First Round Capital, investing in businesses with women at the head makes business sense in every sector, we just need to help educate investors.
Research has highlighted that women founders tend to be more honest about the performance of their businesses, and are more ambitious that their male counterparts, which should be food for thought for any investors reading this piece. Women-led technology companies achieve a 35% higher return on investment, according to research from the Kauffman Foundation in the US. In addition, a recent study from the BI Norwegian Business School showed that women are better suited to leadership then men. (Guardian Small Business Network April 2017)
Given these statistics it is rather confusing that so few investment companies are seeking out female founders. However, there is light at the end of the tunnel. Venture capital firms with women at the helm are attempting to address the imbalance and are making a concerted effort to invest in female start-up companies.
Here in the UK the very inspiring Debbie Woscoff , CEO of Love Home Swap has spoken widely about the barriers to investment for female founders. With co founder Anna Jones, former CEO of Hearst she has set up the AllBright foundation “with a mission to fund and support female entrepreneurs across the UK and to ultimately make the UK the best place to be a female founder”
It isn’t just big venture capital funding that passes women by, sadly they get much less of the start up funding pot too. Only 9% of startup funding went to female founders in the UK last year
Here in the UK government backed start up loans (up to £25,000) are available to any new business owner who qualifies, regardless of their gender. Your Business Hub have partnered with Transmit Start-Ups to help local entrepreneurs access capital and perhaps readdress this imbalance somewhat.
Start up loans through Transmit Start-Ups are available for UK residents over the age of 18 with a new business concept, or an existing business that is under 2 years old. Women, please apply! Details can be found here.
Share your opinion
What has been your experience? Have you got any ideas how we can work together to increase investment in our businesses? Working as one, certainly makes us stronger, as does sharing our skills and knowledge. Share your thoughts in the comments below.