Despite the increasing efforts of female entrepreneurs to land funding and further expand their ventures, most haven´t been able to escape the fatal fate that many lived: only 2% of start-up investments go to women-led ventures, despite 38% of founders being women.
The renowned “Funding Gap” affects more and more women every year globally, although this breach in funding is even more evident in women of colour and those in developing countries.
In today’s day and age, and with the rise of the global online economy, we are in presence of a blooming period in the start-up ecosystem, with new and fresh projects coming to the market each day. However, what´s the stance of women in the picture?
Globally, one in five start-ups had at least one women founder in 2019. This number might not seem important, but considering that 10 years prior, in 2009, women-led ventures only made up 10% of projects. This doubling figure of women founders seems like, rather than an important metric, a decisive one.
To be able to holistically understand the stark reality of these entrepreneurs, we will have to dive into the agitated ocean of the investment markets.
Where is the funding (or lack thereof) coming from?
A wide variety of conglomerates like venture builders, venture capitalists and Investment Banks are constantly on the lookout for new, innovative and disruptive start-up projects to invest in and obtain as much ROI (Return On Investment) as possible. While there exists other smaller investors, like angel investors or independent venture capitalists; the situation doesn´t look positive for women either way.
In Europe, only 2% of VC capital goes to all-female teams, while 5% goes to mixed-gender teams; and although the median investment allocation in startups is of USD 1 million in general, this metric drops to USD 213,000 for women-owned businesses.
Monique Woodard, Black female venture capitalist, often describes her career as one of extremes, dwelling between extreme media exposure and corporate invisibility.
Woodard is a prime example of the future we all aim to see: women of colour with the power to allocate capital and resources. She founded Cake Ventures, a fund catering to the three most overlooked groups in the industry: women, seniors and people of colour.
Her approach to investing is flexible and unique: she often visits not only Atlanta and Los Angeles but also goes on trips all over the world to places often overlooked by big VC´s who rarely leave their spots in the Bay Area. Her strategy of turning to emerging markets and minorities in the business world has served her well, and she claims her experience as a founder has taught her that without diversity in capital allocation, there cannot exist diversity in startups, ideas and founders.
Regarding the issue of inclusion in start-ups not only at a managing level, but also regarding corporate culture, she said in an interview: “One of the biggest failure points for successful companies will continue to be these areas around inclusion. So, if you’re not figuring that out early, I think that’s a huge potential risk for your company and for investors who invest in your company. As an investor, I want to be the person on their cap table or on their board who is really helping them think through some of the potential pitfalls of not focusing on inclusion”, highlighting the importance of approaching inclusion and diversity in every step of the way and as soon as the project sees light.
Inclusion shouldn´t be an add-on to company culture, or an HR marketing campaign to attract talent, but a core value of businesses that aim to thrive in today´s economy.
Diversity is a topic so broad; it soaks an entire venture from its founders, down to the product or service design.
The western society we used to live in took young, male and white as the default, but as Woodard explains, “we´ve had the default for so long that we don´t recognize that there is a new default, and that new default represents several new markets”. Product launches are to become more and more varied as a reflection of societal changes, and while big VCs fail to acknowledge the needs of certain groups in society, others will rise with new ideas that will not only drive the future but also lead the present. When discussing whether the way capital allocation is failing to satisfy the needs of the market, we face reality: the way investors sank money into businesses until now, isn´t able to satisfy market and founders needs anymore.
As the business expression says: “What got us here, won´t get us there”.
The “Like Me” Effect
If before we discussed the homogeneity of the businesses and founders getting the most resources in the start-up ecosystem, this reality doesn´t change as we look into the structures of VCs and Investment Banks.
The “Like Me” effect is defined by the natural tendency of humans to like and show preferences for those who look, act like or remind them of themselves. When roughly 70% of investors are white males, this homophily effect when looking at the way resources are distributed is no surprise. Only 12% of decision markers in US venture capital firms are women, with China leading the statistic at 15% of female representation in management roles.
Academic research has shown that the personal network and connections of investors and founders play a major role when deciding to “go after the bag” in investment rounds. When women seem to have limited access in male dominated corporate spaces, what can be done?
Fighting stereotypes plays a big role, and being assertive in your requests, needs, and business pitches is a skill many female founders are forced to learn from the get-go.
Evidence also shows women are much less likely to ask for financing as often as their male counterparts, creating a never-ending cycle, despite generating larger ROIs than male founders: on average, women generate 78 cents of revenue per dollar invested, compared to 31 cents of the men. Beliefs around financing and scaling businesses might also be due to societal influences, lack of resources and education paths, that fail to encourage women to pursue ventures and empower risk-taking, feeding into female stereotypes.
Approaching these apparent limitations by empowering women with the appropriate tools, skills and knowledge to navigate the business world can turn initial setbacks into competitive advantages. Conscious and unconscious biases about the role of women in businesses have been widely studied, and exercising self-awareness makes sure these limiting beliefs can be tackled and interchanged for empowering ones.
Resources:
(10th September 2020). (SHERRELL DORSEY AND ANNALIESE GRIFFIN )https://every.to/free-radicals/monique-woodards-paradox-11801511?sid=27916
https://www.linkedin.com/in/moniquewoodard/
(24th May 2016). (E. Mollick). https://knowledge.wharton.upenn.edu/article/vcs-arent-funding-women-led-startups/ Knowledge at Wharton University.