Over the last week, I have encountered yet again resounding evidence of the funding gap that exists in women owned businesses. As an angel investor in a few women owned businesses and a wannabe investor in another one, I sometimes find myself unable to help via the traditional routes that I know from my corporate finance world.
“All female teams received 2.87% of the capital invested on average across the seed, early and later funding stages, compared to 68% for all male teams”Diversity Beyond Gender Report, Extend Ventures
This is in the UK. In 2020. Yes, last year. Sometimes you look at this data and you think it must be from 1955. But the reality is, it is probably not very different from 1955. Actually, HBR states that in 2020, the percentage of VC deals going into female-led startups declined in 2020. Great, so women lost more jobs and they got less money to fund businesses. That is what I call progress. 2.8% in 2019 was an all-time high in the US. And then it went back down. And I am not even going into ethnic minorities.
A Business Angel for Women
I started investing in women-owned businesses because I felt like I could contribute partially to this funding gap (I am not a large scale investor) but also, I could contribute with mentoring on strategy and business development that are the other part of the gap that is often there. I seek businesses where I may have an ability to move the dial not only with the money, but more importantly with the strategic challenge and insight I like to bring and is part of my bread and butter day job. There are not many things I like more than to do an open-heart surgery on a business. [Note this is not a pitch invitation, I am a very small scale investor.]
Looking back, I admit I did not even know the statistics were so bad when I started. That may have deterred me. As an angel investor, you want to believe your investee company is going to be able to continue raising money rather than to use only yours and be done with it, aka out of business. And if I had looked at this stats, I would know that on top of a normal start-up investment risk, I would be facing another one. The women-can’t-raise-money-risk. Bummer.
The Root Causes
There are years of study around this, so I am not going to pretend to be the most knowledgeable source. One of my favourite podcasts on the subject is Access and Opportunity, by Carla Harris, which tries to bring to light the side of the minority entrepreneur but also the investor in minorities. Carla is an awesome interviewer (who inspired me in quite some bits of my own podcast) and she is on a mission to bring to light what works and what does not work. So entrepreneurs really can increase their access and have more opportunity. Through the years listening to the podcast, and reading depressing reports on this, and between all the different reasons that exist, 2 stand-out for me:
- Boys Club: like it or not, some things have to be named as they are. The VC world is still heavily white-male dominated and therefore getting into these meeting rooms is as hard as it gets. As we know, pitching to investors is always a tough deal for any start-up, but many women don’t even have the networks to break into these. They may come from different backgrounds, from different universities and not have any shared ground with many of those receiving a first look on these investments. When only 12% of decision makers at VCs are women (HBR again), it is hard for women to build a sufficient network to get in there.
- The Devil you Know: so let’s assume women do get in there and find their way into the meeting room. Be it through network, accelerators or the like, they made it there. Often to find a room of blank faces that don’t really see the point of what they are trying to do or more often than not question the women’s capability to do it. The stories of women co-founders sitting in a meeting room with VCs answering all questions even if the questions were always addressed to their male co-founders are unfortunately not few. VC pitches are filled with conscious and unconscious bias. There is a reason I asked Khyati if she could create an algorithm to deal with this problem at Applied!
The irony of it all
You would think investing is the most rational decision it exists. And faced with these stats every man should be running out of the door to get their hands on some women-owned businesses equity. But it’s not happening. Let’s look at a few points that research show happens in women owned businesses:
- More dollar for your buck (oh I said that already, but can’t help say it again!). HBR suggests it may be because women business plans face so much more scrutiny that they have to have more solid plans? Or because they face so many hurdles to get there that they are overweight on resilience? Hard to say, but 2x more money sounds attractive to me
- More women employed – no joke, women also employee more women. Here is another solution for your gender gap problem. By a factor of 6x according to Kauffman Fellows.
- More focused on making a social contribution – I mean, I can’t even comment on this one. I sat in a charity meeting today and there were 8 of us there. All women. But it happens in “real” business too don’t worry, it’s not just charity.
So despite all this, and all other arguments you could find out there, women are still getting less than THREE per cent of investment. Is there hope?
Are you googling these reports to check if I am making all this funding gap stuff up? Are you in the search of a silver bullet? There isn’t one. As we see women breaking concrete ceilings through different industries and inspiring more women that it is possible, in VC, the conversations are not even about equality. The first step would be to narrow the gap at the early stage, which is a key phase when it is crucial for a business to take itself from proof of concept and into scale and profitable business. How?
- Angel Investing: not all can be angel investors, I recognise that, but sometimes you would be surprised that a little money can go a long way. And if you want to stay at the micro stage but still make a contribution, crowdfunding platforms are a good place to start. That is something I did not do in my first early stage crowdfunding investments, but it is now an exclusion criteria for me. It takes a lot to deter me from investing in women and minority owned businesses only. And even with that exclusion, I am sure I will find a number of amazing investment opportunities ahead of me.
- Networks: you may not be in the investing field, but we are all connected. If you want to support an early stage entrepreneur, be willing to make connections – to costumers, partners, suppliers, potential employers and naturally investors. Take your time to understand the business and why each connection makes sense. Your endorsement is likely to go a long way in ensuring a first meeting is secured. Bring the women into the club.
- Expertise: there are multiple cases where I don’t invest but I may stay as a mentor to the business. Whilst these days I try to link the two, sometimes, what a business really needs is help. An external perspective, a sounding board. Being CEO can be lonely. Especially in a bootstrapped business or when breaking into a new industry. I don’t claim to have any industry expertise. But I do claim to challenge CEOs… and keep them company.
- Support: what a cliché I know, like the “women supporting women”. But you know what, there is no other way to say it. Women are launching businesses, but often they are not even going out and looking for funding faced with all these difficulties. Or they are choosing sectors less prone to look for external funding. I mean, if you knew these were the odds against you, wouldn’t you do the same? So next time you hear a woman talking about growing a business or setting up a new one, grab your pom-poms and do a cheering lap for them. And provide them with constructive support too. Like any of the 3 above!
These all sound simple and unlikely to resolve a problem starting at 2.8% of funding. However, the opportunity for real economic impact is enormous. So what will you start with today?