The disparity between men and women-led ventures when it comes to funding is prevalent on a global scale. COVID-19 also contributed to widening the divide, with a Crunchbase report indicating that only 2.3% of VC funding going to female founders in 2020 (in the US). In general, women receive a mere fraction of investments, when compared to their male counterparts.
And yet, businesses founded and led by women yield higher returns on investment, than those led by men, according to research by Boston Consulting Group (BCG).
So why does this divide exist?
Findings from years of research, led by BCG and MassChallenge, found recurrent reasons as to why women entrepreneurs receive less funding than men. It all starts in the early-stage rounds, which are generally biased towards women. When women are pitching, the types of questions and concerns raised by investors are quite different, than when male entrepreneurs take the stage. Women are challenged differently, and frequently asked to even confirm that they understand the basic technologies related to their companies.
Another key finding are the returns and financial projections that women entrepreneurs tend to make, which are more conservative when compared to men. Male entrepreneurs often oversell their potential, asking for sizable investments to fund their ventures. Women tend to be more risk-averse and portray more realistic projections – which investors may not find appealing.
Women-led businesses tend to create and market their products and services to other women, based on personal experiences. Accordingly, research shows that with an investor panel, VC fund or jury that is predominantly male, their working knowledge of the products and services marketed towards women remains low, hence dampening their interest to invest in female-led ventures.
How can female entrepreneurs get a bigger share of the funding pie?
With this funding phenomenon, prevalent globally, there are ways to counter it, for women to start capturing more financing opportunities.
Investor mindsets need to start changing
VC firms and other types of investors, who actually allocate the funds, can spearhead change, and start looking into Gender Lens Investing strategies. Instead of VC funds seeking the highest projections, which male entrepreneurs are most likely to present, they should instead, be on the lookout for ventures with realistic projections and solid business plans. More females in decision-making roles in VC funds, or women-led VC funds should pave the way for women entrepreneurs to capture the funding they need.
The role of accelerators
Every stakeholder within the startup ecosystem has the responsibility to bridge the divide when it comes to funding. Accordingly, accelerators play a crucial role in the formation and scalability of startups. They can start by ensuring they are attracting and accepting a balanced number of applicants from both genders, and have female mentors, coaches and professionals as part of the professional training group. Matching startups with investors that have stronger acumen when it comes to women-led businesses, can also be part of the accelerators’ roles.
The role of the female entrepreneurs, in a skewed system
Whilst the biases that exist when it comes to funding disparities will unlikely change in the short or medium term, women need to continue powering through despite the odds. In the meantime, female entrepreneurs could benefit from coaches and mentors with venture capital experience, who can provide rigorous feedback to get them investment ready. Given the conservative returns that investors do not generally find appealing, augmenting the projections can work in the favor of female entrepreneurs. Women should not undersell themselves or their startups.
Female entrepreneurs should also showcase their value and experience, which contributed to the formation of their startup.
Given the types of questions that female entrepreneurs are asked, experts encourage women not to get defensive, rather, guide investors to see their point of view – especially in situations where the investors are male.
Women entrepreneurs should also grow their networks, both online and offline. By networking in events and growing their presence on social media channels – such as Linkedin – women can create more visibility for their startups and benefit from the power of the network.
The narrative is changing when it comes to investing in female-led businesses, albeit slowly. The responsibility is primarily on the shoulders of the investors and funds, to adopt a less biased approach when it comes to women-founded businesses. Other players in the ecosystem, such as the accelerators, can also facilitate funding opportunities for women-owned businesses. And the female entrepreneurs? They should continue powering through and not let the disparity in funding deter their success.