Only 2% of female-led companies receive funding. What needs to change to break the current funding gap?
There is an unconscious bias around investing in women – and it applies to both male and female investors. This is not only in the UK; in some countries, lenders demand collateral as a guarantee, such as land or property – and, in places where men own these for social, cultural or legal reasons, women are shut out of lending opportunities.
Despite that there are many successful female-led businesses, but how many more would there be if more funding was available? According to the Alison Rose Review, there is the potential to unlock £250bn of new value for the UK economy if women started and scaled at the same rate as their male counterparts.
The government is keen to develop the UK as an economy that promotes entrepreneurship to attract business and boost our economy, but the funding gap for women is right here and now – and relatively easy to solve.
It’s a sad fact that some female investors don’t invest in female-led companies, so it’s not just a male closed shop. Education needs to take place to help both male and female investors to look at female entrepreneurs as potential investment opportunities.
However, it’s not a one-way street; female entrepreneurs are less likely to seek out funding. The cliché ‘if you don’t ask, you don’t get’ has never been more true. Part of the change needs to include encouraging female business owners to see funding as a mainstream option, not an ‘I won’t qualify’ option.
Standard financial products don’t always work for women, so investors need to take an innovative approach and view the advantages of working with female-led businesses. Most female entrepreneurs are driven and highly invested in their businesses. They will do whatever it takes to make it work. The fact that there are so many successful female-led businesses, despite the low levels of external funding, is a testament to that.
Strategies to change female funding
Doing nothing isn’t acceptable. Action needs to be focused on closing that female-funding gap. There are some key strategies that will make a significant difference.
There are female-oriented venture capital events and groups and the more people that participate, specifically investors and companies with a woman at the helm, the more opportunities will be generated.
Promote funding for female-led businesses more actively, so women can see that the opportunities, geared to them, are there. Encouraging women to ask for funding is part of the solution.
Investors need to take a closer look at smaller organisations and see the advantages that exist for investment. With the right investment smaller companies can show rapid growth and also significant returns for investors. In the financial services industry nearly 200 banks, venture capital firms, angel syndicates and other financial organisations (representing £1tr in assets) have signed up to the Investing in Women Code. However, this is only a small number in comparison with the total financial services industry, more are needed.
Monitoring the figures and keeping the results visible will keep the issue in people’s awareness. It’s also important to monitor and evaluate the diversity of business leaders and those who are in leadership roles.
If venture capital firms have a quota for investing in funding and investing in female-led businesses, they’ll be much more active in seeking out potential investment opportunities.
There are two sides to the gap in funding for female-led businesses – both can be solved by attention and education. Awareness comes first and then needs to be followed by action. The potential is massive, for businesses, for investors and for the economy.
Shalini Khemka (CBE) founded E2E (www.e2exchange.com) in 2011, where she is the Chief Executive and serves on its Board.
E2E has developed into an exciting and ground-breaking powerhouse of entrepreneurs, investors, non-execs, and SME-focused corporate organisations.
Its mission is to develop the largest and most active entrepreneurial ecosystem in the UK to enable extraordinary entrepreneurship.
Shalini is also the Chair designate of Funding Focus.
In March 2023, E2E launched the E2E 100 in association with The Independent. The E2E 100 will features six tracks highlighting the huge achievements of UK businesses and will be celebrated with launch receptions at the Houses of Parliament and House of Lords.