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Why female founders are underfunded compared to their male counterparts

Written by Varsha Saraogi on Thursday, 25 October 2018. Posted in Investment, Finance

Companies are increasingly addressing the gender pay gap and sexism issue after the #MeToo and #TimesUp movements but now it’s time to close the investment gap for female entrepreneurs

Why female founders are underfunded compared to their male counterparts

When Olivia Sibony, co-founder of Grub Club, the dining out platform for food lovers, aspired to expand her startup she realised how ubiquitous gender discrimination was in the VC world. “When we were fundraising, a surprising comment we got was since I was ‘of child-bearing age’, they didn’t find it plausible to invest in us,” she recalls. And having an Indian co-founder didn’t work in her favour either. “When you’re in that position of being a minority, you just spend your entire life fundraising without reaching goals.” Getting investment for a female entrepreneur is indeed an unstable path and looking at cases like Sibony, it’s also filled with blatant sexism.

But she is hardly alone in experiencing such discrimination. Indeed, a survey by The Telegraph showed two-thirds of 750 female founders felt they weren’t taken seriously and were treated differently compared to their male counterparts when pitching to investors. This is what drove Sibony to sell her company and spearhead SeedTribe, a crowdfunding platform built to fill in the gap for women-led businesses. She’s now determined to “bring more female investors onto the platform.” “If we had more women as investors, matters of age or gender wouldn’t be raised,” she argues. Nor would it be a problem if there was a female-centric business idea. “For instance, if a panel of investors got a pitch about a woman’s sexual wellness or a period product, most say ‘let me take this home to my wife and see what she thinks.’” This attitude has prevented many startups spawned by women from taking flight.

In a progressive country like the UK, one would assume there’s equality to some degree but that can’t be further from the truth. A report from The Entrepreneurs Network, the non-profit business community, found only 9% of startup investments went to those run by women. The question arises: why does this funding black hole exist? Interestingly, it’s not entirely unrelated to the age-old issue of the gender pay gap. “Since men earn more dollars than women they tend to have more to invest and hence the cycle continues,” Sibony adds. Indeed, investment has quite been a part of the man’s world since the beginning. “There are plenty of women who have an abundance of money but lack the inclination to become an investor as they’ve always pictured a man doing that job.”

But now, a lot of women like Sibony have taken it upon themselves to change the dynamics of the boys’ club in the investment sector. Jenny Tooth, CEO of UK Business Angels Association, the investment firm, also believes the solution to ensure more women head businesses is to establish a balance in the demographics of investors. “By building and growing an effective women’s angel community, we can directly affect the potential of female entrepreneurs accessing investment,” she says. Given women account for just 8% of partners in the top 100 VC firms according to a Crunchbase report, it’s easy to see how the sector screams out desperately for equality. “In my experience, some of the best ideas are coming from women – it’s just about enabling those voices to be heard more in the environment in which we’re investing.” And that’s what Tooth aims to achieve by nurturing more female angels to pump money into women-led startups.

Bringing in more women as investors would solve many other obstacles that female entrepreneurs face, such as both genders being quizzed the same way regarding their enterprises as opposed to the current scenario. This was backed by a study from Harvard Business Review which said investors today focused more on growth and vision when interrogating male entrepreneurs but with women the questions are more about their previous achievements. And this approach resulted in less funding for them. “Women are given investment on what they’ve accomplished and men are given investment on what they could accomplish – which is just unfair,” says Christina Bechhold Russ, a VC at Samsung NEXT, the investment firm. This insight is what made her launch Empire Angels, the network and funding platform, in New York six years ago and this year in the UK so startups under the leadership of diverse founders too can get funding easily.

Apart from bringing more women into the room of investors, VCs and angels must be more cognisant about how essential and profitable it is to encourage and fund female founders. Despite getting less investment, women-led companies generate 10% more revenue compared to their male counterparts. A report by Boston Consulting Group, the management consulting firm, found female business owners returned 78¢ for every $1 of funding as opposed to 31¢ from men. This resulted in investors being able to earn an additional $85m in a span of five years. “The numbers will increase as more women take charge in the startup world,” Tooth says.

Indeed, the challenge lies in shattering the glass ceiling of the male-dominated investment sector. Confidence and conviction while pitching, which many women fail to show, is a major factor. “Unfortunately women are more likely to be criticised if they are unapologetically competitive,” Bechhold Russ says. “I would say it’s probably not disagreed by anyone that men are generally threatened by assertive women. I think it’s a balance. Behaving like a man is the best way to get ahead in this circumstance.” However, that doesn’t mean women should fear taking a leaf out of Sheryl Sandberg’s book and lean in. “People invest in people who display confidence and if you don’t fit that archetype, it can be difficult to raise money,” Bechhold Russ adds.

The best way to inculcate a greater sense of assertiveness is to get back to the basics. Educating women to harbour a higher sense of fearlessness by broadening their options is the foundation to be built from school. Given that many investors look for a data-driven or tech-based startup, women must tread beyond their comfort zone. “Getting more women in STEM fields will give them the confidence that they can pursue and start companies in more tech-based areas [rather than just] traditional ones,” Bechhold Russ adds. Indeed, the financial industry remains heavily male-congested and women make up less than a third of the overall STEM workforce according to the Catalyst, the non-profit firm for female founders. Having a better knowledge in those areas will inspire them to create largely futuristic companies.

However, the financial momentum, albeit possible, can’t occur unless women see inspirational role models to look up to. “It’s a catch 22 situation – we need more women from diverse backgrounds to talk about their business journey,” Tooth says. “A potential businesswoman might hear a success story and go ‘that could be me, I could do that.’”

Indeed, the urgency of closing this gap is more now than ever. While women are taking over in the superhero world and reigning over the Iron Throne, it’s time to encourage them in the money-making sectors as well. “The need of the hour is to encourage more women entrepreneurs to be more confident about coming forward for investment and ensure they get what’s deserved,” Tooth concludes. “And this will help to redress the balance.”

About the Author

Varsha Saraogi

Varsha Saraogi

As junior feature writer and a recent MA Journalism graduate, Varsha has joined the Elite team to fuel her passion. Along with being immersed in the money making sector and ranting about women’s rights, she will be hunting for news about everything business related. And burying her head in economic magazines. Follow her on twitter at @msvarshasaraogi for her mundane musings.

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