What is the Investment Barrier for Female-led Start-Ups?

As the number of female-led and female-founded start-ups grows year on year, why is it so difficult for them to find investment? It’s a question that I found myself thinking about a few weeks ago, so in this blog, I am trying to understand what the barriers are and how they can be broken down.  

Women have led and founded some incredibly innovative companies across many sectors in recent years and whilst the biotech and life sciences sectors are a good example of where female entrepreneurs do attract funding, they still struggle to match the funding from investors and venture capitalists (VCs) that male founded businesses see. It seems that access to capital is so difficult that only around 20% of investments made in any year make it to these businesses. 

Investors and VC decision makers are men 

It comes as no surprise that both the private equity and venture capital industries suffer from low levels of gender bias both globally and regionally. Typically, less than 15% of senior investment teams are made up of women. If this is the case, then of course they will naturally back all-male groups? 

In a Harvard Business Review study, it was found that the interactions between VCs and founders were very different when men were asking questions of male entrepreneurs versus female entrepreneurs. The women were often asked about the potential for loss in their business whilst the males were asked about the potential for gain – demonstrating the misconception that a female-led business was going to fail and that investment would not be secure and lost. 

This is partly due to the fact that many women establish businesses as a result of personal interests or to create a social enterprise that may have a low return but be a worthwhile venture, whereas men are more often likely to consider personal financial gain and want to make money out of their entrepreneurship. 

This gender bias is costing female-founded businesses tens of millions of GBP annually and unless the number of women heading up investments and VCs can grow, men will continue to be more comfortable dealing with men and women will sadly lose out.  

Female-led businesses can attract investment at later stages and demonstrate growth.  

Female entrepreneurs may not receive the angel funding that their male counterparts receive, but they do attract good levels of investment at later stages – particularly when their success is more visible.  

A study earlier in the year also found that female-led businesses generated 12% higher revenues annually than their all-male counterparts. Moreover, they are quicker to react and adapt to changing environments where the business is forced to change to survive, meaning that they can prove longevity through diversity. 

COVID-19 was a great leveller in demonstrating that being nimble and adapting to changes brought about by a global pandemic was a strength for female-led businesses. A different style of leadership helped them to weather the storm – examples such as moving businesses to online platforms were much more prevalent in female-led businesses.  

The trend is improving but it still isn’t good enough 

It isn’t all doom and gloom. If you look at the statistics of the many reports written about the gender investment gap, they will demonstrate that in the last 10 years, funding for female-led and female-founded businesses is improving, and has increased five-fold since 2010. 

Sadly, however, whilst we still have a combination of gender bias on the part of male investors and the lack of female representation amongst investors and founders, there will always be a vicious circle that will be difficult to break, and we won’t reach parity for a long time.