Amid higher inflation and macroeconomic uncertainty, women continue to set up and expand businesses. Yet female founders’ share of funds from backers remains stubbornly low.
“There is still a big issue of unconscious bias against women founders,” says Sutin Yang, head of scale-ups at Virgin StartUp, a UK not-for-profit organisation, which has pledged to fund an equal number of male and female entrepreneurs.
“Investors tend to be more likely to interrogate a female founder’s business projections and ask questions around downside risk,” Yang adds. As a result, female founders lower their business projections, their valuation, and are “less ambitious in their pitch”.
The percentage of venture capital funding that went to female-led start-ups in the US fell from 2.4 per cent in 2021 to 1.9 per cent last year, according to data provider PitchBook. But it rose to 17.2 per cent if the management team included at least one man.
It is not for lack of investment opportunity. A recent report by Global Entrepreneurship Monitor found the number of women in upper-middle-income countries starting a business rose by 11 per cent from 2019 to 2021 — the height of the pandemic. And the number of women intending to start a business also rose, by 4 per cent, in that time.
In the UK alone, women started more than 150,000 companies in 2022, more than twice the level in 2018, according to the latest Rose Review Progress Report, an independent study of female entrepreneurship, last month.
Abhilasha Dafria, chief executive of Angels Den Funding, which matches early-stage businesses with investors, has seen biases play out, too. “Early bets are taken on showmanship and confidence. We see female entrepreneurs pitching in a way that they almost want to under-promise and over-perform,” she says. “I think that comes, largely, from being intimidated as the only woman in the room.”
Although research studies suggest that businesses founded by women ultimately deliver higher revenue, they are generally regarded as high-risk.
“Right at the outset, I was told I wouldn’t raise capital without a male co-founder,” says Michelle Kennedy, who quit her job as deputy chief executive of dating site Badoo in 2016 to start Peanut, a networking app for women to meet up and find support.
Yet Kennedy has raised more than $23mn in funds, and Peanut is used by more than 3mn women a month. She has now set up Peanut StartHER, a micro fund investing in women and under-represented founders.
It has put more than £500,000 into 16 companies, plus around £1mn into funds such as BBG Ventures and Female Founders Fund. “We have to stop referring to that first fundraising step as a ‘friends and family’ round,” she says. “[At Peanut’s StartHER] we want to be the family these founders can turn to.”
Trinny Woodall, the former UK television presenter, started beauty and skincare brand Trinny London in her fifties. “I was constantly asked how old I was. Two VCs in Silicon Valley told me they would have invested in me if I was 30,” she recalls. “Ageism is hellish.”
She pitched to 23 investment firms before Unilever Ventures, venture capital arm of global consumer goods giant Unilever, invested £2.2mn in 2018. Today, her UK-based business employs 173 people with revenues topping £50mn in 2022.
Another suggested barrier is the lack of women among investors. Venture capital is still largely dominated by male investors betting on start-ups led by men.
A recent report in Harvard Business Review says female founders should try to recruit a diverse team of VCs in the first round — but it warns against fundraising exclusively from female VCs as this can make it harder to raise additional rounds.
In Europe, only 15 per cent of venture capital firm general partners are women, according to a 2022 report by European Women in VC, a community of female senior venture capitalist investors across Europe.
Tong Gu, Reem Mobassaleh Wyndham and Monik Pham are among this rare club. They run London firm Pact, which recently launched a £30mn seed fund backed by Oscar-winning actress Anne Hathaway and Jeff Dean, head of AI at Google, among others. Pact claims to be the first venture capital firm in the UK founded by three female partners.
“While we found lots of support, we were also met with a lot of scepticism,” says Mobassaleh Wyndham. “If we want to see a change in the types of companies and founders that get funded, we have to bring diversity to the [general partner] investors in charge of that capital allocation.”
When Michelle You, co-founder of concert-finder service Songkick, started fundraising for another business, Supercritical, a software company helping tech businesses to achieve net zero, she made sure half her investors were women. “The world of investing is opaque and driven by relationships,” she says. “I wanted to help put an end to the vicious cycle: men asking other men to invest and then making the massive financial gains at exit that enable these men to invest again.”
She asked everyone she knew for introductions to any women who might invest. The funding round took longer to close and she turned down money from some experienced male investors to make space for women.
“We were able to get to the point where 50 per cent of our investors were female, and we successfully raised £2mn in pre-seed funding,” she says. “Pushing for gender equality in funding shouldn’t be a momentous thing to do, it’s just the first step towards building better companies and a better industry for us all.”