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Action needed as venture capitalists reluctant to invest in fintechs founded by women

Action is needed if fintechs set up by women are to receive the same level of venture capitalist backing as those set up by men

The UK financial technology (fintech) industry is expanding rapidly, but figures show there is a shortage of venture capitalist (VC) funds for fintechs run by women.

Only 3% (£54m) of the money invested in UK fintechs by venture capitalists last year went into companies with female founders, according to figures from Innovate Finance. It also found that only 17 out of 261 UK deals (6%) had at least one female founder or co-founder.

Part of the problem is that not enough women are founding fintechs. This is largely due to the lack of women in top jobs in the finance sector, where most fintech founders come from. Innovative Finance’s figures from 2017 showed that 17% of UK fintech executives were women.

These figures are surprising given that diverse businesses are known to generate higher returns. A study by the Boston Consulting Group last year found that companies that have more diverse management teams achieve 19% higher revenue because of innovation.

But why do women who set up fintechs appear to struggle to get investment? Many blame a lack of diversity among decision-makers at VCs and early-stage investors, but this is only part of the problem for women seeking to set up fintechs.

One of the most prominent women in fintech, former Allied Irish Bank COO Anne Boden, who set up Starling Bank and has raised well over £100m in investment, said: “People tend to recruit, promote and invest in people who look like themselves. Unless you get more women managers, leaders and VCs, that’s not going to change."

Charlotte Crosswell, CEO at Innovative Finance, described the investment numbers are pretty shocking. “There is absolutely no reason why that should be, apart from the fact that a lot of VCs don’t have women on their investment team,” she said.

Read more about women in fintech

  • This year’s International Women’s Day sparked a debate at the Innovate Finance Global Summit around the lack of women holding board-level positions both in the fintech sector and outside it.
  •  Former Allied Irish Bank COO Anne Boden is to create a digital bank in 2015, with the aim of changing banking in the same way Apple changed music.
  • Innovate Finance says financial technology is one of the easiest places to find diversity in business, and the UK has it in abundance.

Crosswell said targets might have to be set to address the imbalance, such as a percentage of women on boards. “A lot of fntech companies were started by senior bankers,” she said. “If you look at how many women there are at senior banking levels, the numbers aren’t good – only 29% of women in the sector, and we’re still not seeing women coming into the sector.”

Had Innovate Finance’s figures showed that female-led fintechs had received 15% of VC funding rather than 3%, it would still be disappointing, but there would be hope than it could be addressed through voluntary changes to VC policies. But tweaks don’t look like they will change anything in the foreseeable future and more drastic action might be required.

Positive discrimination

You might not expect a very successful women to call for positive discrimination in favour of female-founded fintechs, but that is exactly what has been suggested by Sylvia Carrasco, CEO at London-based trading fintech platform Goldex Technologies.

Goldex, a platform for people trading in gold, is Carrasco’s current venture, but she has held senior posts in the London trading sector, with a focus on electronic trading, since the late 1990s. She lived through the “big bang” when trading moved from paper and telephone-based deal making to computerised trading, so she knows all about transforming a sector.

“Women in fintech all know how hard it is to raise money,” said Carrasco.

She acknowledged the fact that the main issue in fintech is that very few women set up fintech companies. This, she said, is due to a lack of women in senior roles in the City, which is a prerequisite for setting up a fintech.

The male domination of the VC community is another challenge, said Carrasco. “Why is the VC community not giving money to fintechs set up by women? A lot is because the VC industry is run by men and is one of the few places that is still a men’s club,” she added.

Drastic action is required if VCs are to increase investment in female-founded fintechs, said Carrasco. “Because the proportion is so low, you have to force it, a little like by law. If I was in charge of a VC fund, I would be enforcing positive discrimination as it is the only way we can increase the investment,” she said.

“Once you get up to 20% or so, you could argue that you have to put other mechanisms in place.”

Unconscious bias

Even if positive discrimination is a difficult concept to accept for an industry of high-flyers, the current unconscious bias towards men should at least be addressed.

A female CEO in UK fintech, who wished to remain anonymous, said it is hard to imagine in this day and age, but when VCs quiz fintechs seeking investment, they ask female founders different questions to those they ask male founders.

This unconscious bias leads to warped decisions, said the CEO. “These decisions are based on these biases, such as male founders being asked questions focused on growth and size of opportunity and female founders asked risk and prevention-oriented questions,” she said.

But if VCs overcome their bias towards fintechs set up by men, they will expect more female fintech leaders to come forward.

Diversity problems

The shortage is not helped by a lack of investment, but is mainly the result of the traditional industries that created fintech. Maria Scott, founder and CEO of Taina Technology, which helps financial services companies meet their tax regulatory requirements through automation technology, said the tech part of fintech is also partly to blame for the lack of female leaders.

Fintech combines two traditional sectors – technology and finance – which both have their own diversity problems, said Scott. “Both of these have been suffering from the shortage of women leaders,” she said. “There are some exceptional pockets, but across the board it is true for both sectors.”

Scott said the root causes for the two sectors are different, with technology seen as more of a traditional domain for boys, with few girls choosing it as an area to study, and the finance sector traditionally seen as being hard to combine with family responsibilities. Both these industries are slowly overcoming these obstacles, she said.

“Overall,though, why do we generally have fewer female leaders in fast-moving businesses?” said Scott. “Fundamentally, I believe it is because it is genuinely very hard to combine leading a fast -growing business with the responsibilities of a mum and a wife. We as women tend to be very hard on ourselves and anything less than perfect does not tend to be good enough.

“In an ideal world, we would all be seen as equally responsible for our families, so women would be equally likely to step up to leadership as men are. This mindset change will just take time and take a lot more role models.”

Next Steps

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