Why do women find it harder than men to access funding?

In this debate, Business Leader asked four highly respected thought-leaders in the investor space: Why do women find it harder to access funding?

Despite women making up half the population, it’s not as straightforward as it should be for female entrepreneurs to access the funding they need to start and scale-up businesses.

Barclays and the Female Founders Forum published a report in 2017 called ‘Untapped Unicorns’ on the challenges faced by women seeking funding. The report found that compared to female entrepreneurs, men are 86% more likely to access venture capital and 56% more likely to secure angel investment.

Furthermore, in 2016, 91% of investment capital went to companies without a single female founder, while only 9% of capital went to companies with at least one.

This is all despite the fact that when women-owned businesses are granted funding, they show 20% higher returns with 50% less investment.

So if performance is not the issue, why do so few female entrepreneurs access investment opportunities?

NOT ENOUGH APPLICATIONS

Juliet Rogan, Head of High Growth & Entrepreneurs Coverage at Barclays, says that not enough women are applying for funding. “There are fewer female entrepreneurs looking to access investment funding, and that’ll take a while to change as people get more used to the idea of setting up an entrepreneurial high growth business and we see more female entrepreneur role models establish a new norm.”

She adds: “We also need to broaden that understanding of different kinds of funding available. Women can be more risk averse when it comes to taking on investment, so there are many things that can be done to help through support networks. We need to make sure that female founders are prepared from a pitching perspective to get the funding they require.”

LACK OF DIVERSITY IN THE INVESTMENT INDUSTRY

There may be a lack of female entrepreneurs applying for funding – but the reasons behind that dearth are not as simple as plain disinterest. It may partly boil down to a realistic assessment of a female entrepreneur’s chances of being taken seriously.

Mark Pearson, Founder & Managing Partner at Fuel Ventures, notes: “A lot of larger venture capital funds are run by a different generation of male-dominated investment teams who have not historically backed female entrepreneurs. This has created a circular effect – and so the problem goes on.”

Jenny Tooth OBE, Chief Executive of the UK Business Angels Association, agrees: “As only 14% of business angel investors in the UK are women, we know that for many women entrepreneurs, the experience of raising finance has been especially challenging when they have to present their business idea to a room almost entirely filled with male angel investors. Women have previously noted that operating within this largely male-dominated ecosystem can be intimidating and can make it difficult for women to fully access the breadth of investment opportunities available.”

It is not news that women are generally – even if subconsciously – held in lower regard than men. Nor is this a UK-specific problem. The Global Entrepreneurship Monitor’s (GEM) 2012 Global Report on Women and Entrepreneurship found that in every single economy included in the study, women were perceived to be less capable than men. But Diversity VC estimates that only 18% of UK investment professionals are women, while women represent just 13% of decision makers in UK venture capital. And some other countries are doing markedly better. Women are twice as likely to be entrepreneurially active in the USA than
in the UK.

Jenny Tooth recommends increasing diversity amongst investment professionals. “Women typically invest more frequently into women entrepreneurs than their male counterparts, with over half (54%) of women angel investors backing at least one female-founded business and only a small minority of male investors doing the same. Because of this, it is imperative that we start properly addressing how the industry can increase diversity and implement notable change as the benefits of diversity extend far beyond the investment landscape.”

GENDER BALANCE ISN’T ENOUGH

Female investors are more likely to take women-owned businesses seriously. But simply appointing more women as investment professionals does not amount to a diverse industry. The pre-judgement that women face also impacts ethnic minority entrepreneurs. And for women of colour, the disadvantages are compounded – despite research showing that non-white women are more often entrepreneurial. Prowess found that amongst black entrepreneurs, there is almost no gender gap, with black women 97% as likely to start a business as black men.

Juliet Rogan says: “We focus a lot on the male/female divide but it’s diversity in general that is important. If you’re in a minority, it’s always going to be more difficult to get that representation so as an industry we need to focus on it through the networks we create.”

LOOK ABROAD FOR GUIDANCE

So, what more can be done, besides the push for a more diverse investment profession and for male investors to look beyond the familiar? Dr Marie Griffiths, Reader in Digital Technologies at the University of Salford, suggests that we look to the US for guidance. “The UK needs to adopt best practice from elsewhere,” Marie says. “Look towards America and other countries that are experiencing an increase of female and black, Asian and ethnic minority business start-ups.”  The US introduced the Women’s Business Act in 1988 to develop long-term infrastructure to support female entrepreneurship. As a result, around a third of US businesses are now majority female-owned, with women-owned businesses continuing to grow at double the rate of other US companies.

Marie suggests public sector programmes as a good place to start. “The FSB argue, and it is surprising this is not common practice, that all Government supported enterprise development programmes should be equality impact assessed, so that the impact can be made on women at the budgeting, design, implementation, and monitoring and evaluation stages. It can be argued that this should also be extended for minority groups.” The public sector could also examine its procurement processes. In 2009, the National Policy Centre for Women’s Enterprise (NPCWE) found that women-owned businesses win fewer than 5% of public sector and corporate contracts.

BUILD UP NETWORKS

As for female entrepreneurs, Mark Pearson encourages successful business women to take the spotlight. “We need to see more women coming forward to share their success stories. A good starting point would be a higher percentage of female representation at conferences and industry events, and greater peer-to-peer support. Highlighting more female successes would surely encourage more female founders into the entrepreneur space.”