Raising Venture Funding is Difficult if you’re Female

The statistics show that women get far fewer venture capital pounds than men. According to a report by the British Business Bank all-female teams get a staggeringly low one per cent of funding, yet all-male teams get 89 per cent.

When this story broke in early 2019, we wanted to explore further. It’s common knowledge in the fundraising landscape that the majority of business investment goes to men. There are less women than men running businesses and this gap increases when looking at businesses that get fundraising.

We’ve taken a wide review of business literature to try and find answers but let’s start with a summary of the issues in the UK today:

Fundraising

• For every £1 of UK venture capital (VC) investment in the UK, all-female teams get less than 1p, all-male teams get 89p, and mixed-gender teams get 10p (source: British Business Bank Report 2018).
• VC investment in all-female teams is growing but very slowly. At the current rate, it will take until 2045 until all-female teams get 10% of funding (British Business Bank Report 2018).
• 5% of pitch decks that reach VC’s are from all-female teams, meaning that they still fare proportionally less well than all-male teams (British Business Bank Report 2018).

Business Leadership

• 22% of senior management positions are taken up by women in the UK compared to 24% internationally (Grant Thornton Report).
• 19% of SME’s are led by women, two percentage points lower than in 2015 (Department for Business, Energy and Industrial Strategy Statistical Release).

The statistics could be endlessly reeled off, but the conclusion is clear: women are underrepresented in business, and this underrepresentation is even more prominent with businesses seeking fundraising. There isn’t a simple answer to the problem but in the UK the government is attempting to address the issue.

The report by the British Business Bank which unearthed that all-women teams get 1p for every £1 invested in venture capital was commissioned by Chancellor Philip Hammond in 2017.

Liz Truss, Chief Secretary to the Treasury, said: “Men seem to have a virtual monopoly on venture capital. We need more investment going into start-up ventures and more women putting businesses forward.”

Let’s take a look at why there are so few women receiving funding.

Women Lead 7 Per Cent of the UK’s Fastest Growing Businesses

The 100 Fastest Growing Companies UK Report by equity crowdfunding platform Syndicate Room includes only seven businesses led by women.

Given that almost 75 per cent of the businesses in the report excel in the technology space we can see that women are underrepresented in the technology industry. It’s technology businesses that receive a large chunk of venture funding, so a clear problem emerges: women aren’t represented well in fields where high growth businesses operate.

Women make up about 21 per cent of the STEM (science, technology, engineering and maths) jobs. In UK schools girls make up 20 per cent of the GCSE Computer Science cohort, which drops off to 16 per cent at degree level. The split is 50 per cent in India and 50 per cent in Malaysia – for some reason the UK system is not attracting women into STEM jobs.

It’s Hard for Women in the STEM Workplace

Research by the Center for Talent Innovation found that women make up 41 per cent of scientists, engineers and technologists in the lower echelons of the corporate ladder, but 52 per cent drop out. Laure Sherbin in her article for the Harvard Business Review cites six reasons women succeed in STEM, and also gives us insight into why some women don’t succeed.

1. She suggests confidence is important for success and that women’s confidence is undermined by stereotypes placed on them. She points readers to a book called The Confidence Code that offers practical advice on developing confidence.
2. Women are less willing to claim credit for ideas. 83 per cent of women claim to be spoken over and robbed of ideas. Of women that are successful in STEM, 40 per cent spoke up and confronted the situation.
3. The research suggests that women invest deeply in peer networks. Half of successful women say their network linked them to senior leaders.
4. Successful women in STEM engage in mentoring. The majority of successful women discussed helping a more junior colleague to advance their career. This may because it demonstrates leadership skills and it can sharpen their skills.
5. 78 per cent of successful women claimed they were (a few tweaks aside) authentic at work.
6. Personal brand building was prevalent among successful women. They speak on panels, sit on boards and make their credentials known. They also keep up-to-date with recruiters and attend key events. In short, they are visible.

So according to Sherbin women get a tough time in the workplace, but there are tactics they can employ to increase the chances of success.

Men Get a Better Deal

It’s tough for women in the workplace, exasperated in the technology sector. Meanwhile, men generally get a better deal. Nancy Carter and Christine Silva of global non-profit Catalyst and Hermina Ibarra, professor of organisation behaviour at INSEAD, contributed an interesting article called Why Men Still Get More Promotions Than Women to the Harvard Business Review.

Central to the article was a study of 4000 professionals who graduated from top MBA programs between 1996 and 2007. The findings were stark: women are paid $4,600 (£3,500 in March 2019) less than men in their first post-MBA position and women have significantly less career satisfaction than men.

A more in-depth study of 40 high potential men and women that focused on hurdles they faced when moving into senior roles and the help and support they received.  There were some interesting conclusions:

• The research defined a type of mentoring called sponsorship. This is where the mentor goes beyond just giving feedback and advice but also advocates for the mentee among senior executives. The research suggests that women get less sponsorship compared to male peers.
• In a survey by Catalyst, it was found that women typically had mentors with less influence than men. The study shows a correlation between the seniority of the mentor and the mentees career progression.

It’s not a great surprise that men get better opportunities, but this research does a good job of laying out some of the specific benefits men experience.

Men Control the Money

Coming back to the specific issue of women not receiving venture capital cash, one interesting dynamic here is that most investors are men.

Diversity VC, a non-profit that promotes diversity in venture capital reported:

• 27 per cent of the UK venture capital workforce is made up of women – this figure drops to 11 per cent at a senior level.
• One in seven business angels in the UK is a woman
• A paper by the Harvard Kennedy School called Investors prefer entrepreneurial ventures pitched by attractive men found that investors preferred pitches by male entrepreneurs. They also felt male entrepreneurs were more persuasive, fact-based and logical.
• The study also shows that male entrepreneurs delivering the same pitch were 60 per cent more likely to receive funding.

What Does the Future Hold?

The problem is clear. There are far too many issues to cover them all, but we’ve looked at a few:

• Women get less venture capital.
• Women are generally not working in the careers that make up businesses which attract venture capitalists.
• Men get a better deal at work.
• Men control the purse strings.

The government recognises the issue, and through the British Business Bank there is now focus on the problem. Alongside governmental efforts there have been some studies that look at the issue – let’s take a look.

The Issue is Systemic

In a paper by Duke academics in the Journal of Personality and Social Psychology they challenged the perception that women can solve the problems they face; they call this the “DIY” approach.

In the study participants were directed to read sections of Sheryl Sandberg’s book ‘Lean In’. Some participants read sections that discussed a DIY approach, and the rest were exposed to part of the book that focus on problems such as discrimination.

Participants that read the DIY message were more likely to believe that women could solve the problems but were also responsible for them. They offered the example of an issue at Facebook where women had code rejected more than men; participants that read the DIY message were more likely to believe that women were responsible for the fault and finding a way to fix it. They were less likely to think that there were other changes Facebook could make, for example, managers reviewing code without knowing who wrote it.

Men Have a Key Role to Play

Many of the issues facing women are systemic, and this means there needs to be an organisation-wide drive for change. New research has shown that men who are advocates for this change can experience penalties at work. In the paper Be an advocate for others, unless you are a man, the writers concluded that men who were advocates for others were seen as low on agency and competence.

So the system is broken, and men who try to fix it are penalised. It doesn’t sound very positive, but this article from the Harvard Business Review looks at how men can be strong allies. A positive step is to help provide men with the support to do this. According to the article here are a few tactics for men to employ:

1. Listen and understand.
2. Don’t take centre stage (apparently research shows men are prone to this).
3. Accept you may feel uncomfortable hearing about issues women face.
4. Work in supportive partnerships with women.
5. Don’t just refrain from bad behaviour – become an advocate for change.

How the VC Industry can Change

The British Business Bank report we cited earlier comes up with some suggestions that specifically look at funnelling more funding to female entrepreneurs (and other under-represented groups).

The report goes beyond just women not receiving funds and cites racial, socio-economic and other inequalities as important areas to address.

One way that venture capitalists can address the problem is by driving the agenda. The report names a few venture capital firms that have implemented inclusion policies. Here are a few:

• Atomico require companies to put diversity policies in place within six months of receiving an investment. It has also set an objective of 50 per cent gender diversity at associate level so it will have a core of female leaders in the future.
• Capital Enterprise, a seed stage funder, is focussing on helping women access the ecosystem. In the Green Light Fund (an enterprise readiness programme for start-ups looking to raise seed rounds),  all-female teams were just as successful as all-male teams, and now the fund is committed to making the ecosystem accessible for all under-represented groups.

The list of organisations with a commitment to diversity is encouraging: Downing, Episode 1, Frontline, Funding London, Voulez Capital, Wayra, Forward Partners, DM Capital, JamJar Investments and Octopus Ventures are just a few of the other funds names in the report.

Conclusion

It seems that although the current access to venture capital funding for women and other under-represented groups is less than ideal there is appetite to address the issue. We welcome these efforts.

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