Diversity and Funding: Do females raise less funds than males?

Patricia Keating – CEO of Tech Manchester

Patricia Keating – CEO of Tech Manchester

For this funding segment, we spoke to Sam Smith – CEO at finnCap and Patricia Keating – CEO of Tech Manchester, about funding and diversity. Do females raise less funding than males – and why is this?

Is funding for females leaders still an issue?

Patricia Keating: “A recent report by Tide looked at a small demographic of university graduates and found that women graduates raise their first £1m funding faster than men. But beyond the scope of this narrow demographic the challenges are very different.

“For example, Women In Tech found that when it comes to achieving capital following a pitch for a start-up, men are four times more likely than women to succeed.

“There are many factors to explain this. Unconscious bias of typically male investors considering them the most topical. Early stage venture capital is dominated by men. Women make up 13% of decision makers in the UK. However, to consider women who are 51% of the population ‘niche’ is a fundamental missed opportunity for investors.

“Ethnic founders commonly find a similar problem when they create a product to meet a need because nothing exists for their market but meet the same objection of not a big enough audience.

“The British Business Bank ‘Alone Together’ report also indicates that it’s still an issue.Female business owners median turnover is a third of that of male business owners and median productivity is less than half. Black, and Asian and Other Ethnic Minority female entrepreneurs see least success. 37% of Black female entrepreneurs did not make a profit last year, compared to just 16% of White male entrepreneurs.

“Turnover has a significant impact on the ability to raise funding. Investors are interested in scalable profitable businesses.”

Sam Smith: “Unfortunately, it is still very much an issue and one that needs addressing urgently, as we’re not seeing much progress year to year. A recent report by Extend Ventures found that 68% of the capital raised across the seed, early and late VC funding stages went to all-male teams while just 3% went to all-female teams, with female teams also raising lower sums of money than their male counterparts at each funding stage.

“It is happening for several reasons. Firstly, VC firms tend to focus on sectors such as software, AI and MedTech, which all have a low proportion of female founders, so they have a low representation in venture capital deals. Secondly, over 70% of VC decision makers are male, which likely skews things significantly. Another reason may be that such inequality can perpetuate itself, for example with men often having more developed business networks. This does matter because start-up founders who are recommended to a VC firm by someone they know are 13 times more likely to get funded.”

What is being done to address the issue?

Patricia Keating: “The good news is there is lots being done. Following the Rose Review lead by CEO of Natwest Bank Alison Rose, The British Business Bank along with the UK Business Angels Association, UK Finance and HM Treasury launched the Investing in Women Code. It works with investors and fund managers to increase transparency in this area. The British Business Bank made a number of other commitments as a result of Alone Together report which include improving Start-Up Loans, seeking out actively diverse funds to engage with, as well as provide research and evidence to building targeted investment funds.

“There is a long road ahead though. We need to see more of our male allies helping raise the awareness within the male-dominated investor community about the opportunities before them, and how they may unknowingly discriminate against women led opportunities.”

Sam Smith: “To really make a difference requires a coordinated effort and a cultural shift at VCs. VCs should start by running office hours where founders without ties can meet investors and get advice, and it’s good to see this already happening.

“Tech Nation, for example, is proactively working with Playfair Capital to provide office hours year round for female founders with leading VCs.

“It would also be a step in the right direction if VCs made data on their investments publicly available so the industry’s performance on diversity can be tracked. There has been some action at the government level too. Last year the Treasury drew up an Investing in Women Code, under which banks, VCs and investors pledge to “support the advancement of female entrepreneurship”, which is good to see and sends an important message. What has to happen now is that it’s acted upon.”