In this guest post Anna Faelten, associate partner at EY, talks about the difference in investment between male and female run startups, and how we can start to close this gap.
According to data published by The Entrepreneurs Network, just 8.5% of funding for UK start-ups went to businesses led by women in 2017, with the figure falling to only 2% in the US. For those who do receive funding, women, on average receive significantly less capital, a disparity of more than $1 million, equating to over half of what male entrepreneurs receive, claim BCG.
There are a number of theories surrounding this gender disparity in funding, including that female entrepreneurs are often less ‘salesy’ and bold, taking a more risk-averse approach to their business, which can be misconceived as lacking ambition, knowledge and technical expertise. Additionally, male investors may unconsciously resonate with male entrepreneurs, consequently favouring them. Whilst female entrepreneurs may struggle to relate with a non-diverse group of investors sat on the other side of the table.
Investors and the entrepreneurial community have realised something has to be done, with 200 British business leaders signing an open letter insisting on better access to funding for female founders in the UK earlier this year.
One of the ways we are seeing targeted action in practice is in the form of female funds being set up. These follow the same investment criteria as every other fund, but focus solely on female entrepreneurs. Similarly, accountability must be placed on larger firms and government to lead the way, for example the UK Government recently pledged £400,000 mentoring and business support for eight female entrepreneurs as part of the Women in Innovation awards. The hope is that there will be a network effect, spurring the availability of more funds for more female entrepreneurs.
What can we do?
It is clear that we are moving in the right direction, but there are still actions we can all take to help level the playing field.
- Be a role model
Both male and female entrepreneurs and business leaders have a responsibility to act as advocates for diversity. According to EY’s Fast Growth Tracker, which interviews the entrepreneurial community every year, respondents believed that a lack of role models contributed to the slower growth of female-led businesses. As a mentor you have a role to provide challenges, guidance and insights from your own experiences, as well as acting as a channel for those whose voice may not be so easily heard.
- Get a different perspective
Partnering up with someone who is different to you, for example by background, gender, skill-set, or culture, can help foster greater inclusion in the workplace and harness innovation and new ways of thinking. Results show that diversity in leadership also has a positive impact on capital efficiency. According to the Female Founders Forum, private tech companies with at least one female founder achieved 35% higher ROI and when venture-backed, brought in 12% higher revenue than exclusively male-owned tech companies.
- It is time to call it out
Rather than remaining passive to the issue, challenge the opinions, behaviours or practices that are not supportive of diversity or gender parity. Challenge non-diverse teams, bad behaviour, or non-inclusive environments.
The economic value to the UK of closing the gender investment gap and supporting female entrepreneurs should not be underestimated either. The same research from BCG found that female-led or co-led businesses perform better, generating 10% more in cumulative revenue over five years.