How do you invest in the future? Bank on women.

Emily D’Silva, a freelance journalist, dives deeper into the issues discussed in our latest Tech Flix film.

Despite women-owned businesses growing faster, generating more revenue and generally outperforming those led by men, female entrepreneurs receive only a small fraction of venture capital funding.

An equal society

What typical traits immediately come to mind when you think of a man? Ask Google, and it will give you words like strength, courage, assertiveness, independence and leadership. Now, think about traits you associate with women.

Whether we like it or not, unconscious presumptions about different genders are still with us today. Particularly when it comes to female founders starting businesses, investors perceive them to be less ambitious, less competitive and more of a risk than male founders.

From diversity, equity and inclusion (DEI) strategies, to gender equality laws and mainstream media – like the recent Barbie movie – society is crying out for change. If we took anything away from Barbie, it’s the resounding message that women are just as ambitious and capable as men.

While we’ve been making leaps and bounds to try and improve equality in certain aspects of society, there are some areas where we’re falling tragically short. According to the Rose Review 2023, an estimated 6% of venture funding currently goes to female-led businesses.

And despite increased scrutiny regarding diversity at senior levels in organisations, these positions are still predominantly taken up by straight, white men. As of this August 2023, only 10 of the FTSE 100 are women, none of whom are women of colour. Clearly, something needs to change.

Inequality in the workplace has implications on the economy

Improving gender equality and funding for female entrepreneurs isn’t just about being fair. A lack of gender equality in senior positions in the workplace has significant implications on society and the economy.

Did you know, it’s statistically proven that businesses with female leaders or executives perform better and are more profitable? Women-led businesses have also been shown to contribute significantly to job creation and innovation. Limiting female entrepreneurs’ access to capital is only slowing economic growth.

Yet still, many investors don’t value or recognise this. Tessa Clarke, CEO and co-founder of Olio, the app for sharing leftover food to minimise waste, shed some light on her personal experience of this.

“A lot of the investors, who are almost exclusively male, do not understand the [food waste in the home] problem that we’re trying to solve. They’re not excited about the problem and they don’t really get the solution either,” explains Tessa.

“We’ve found that female investors and also investors of colour are people who understand the importance of the climate crisis, the urgency with which we need to solve it, and also the power that community-based solutions can bring to the table.”

Diverse teams with alternative perspectives offer a wider variety of solutions that can benefit society and lead to greater economic resilience and stability. So why are investors still favouring one demographic?

What do VCs look for when investing?

When looking for a company to invest in, venture capitals (VCs) consider a number of factors: from market trends and the unique selling point (USP) of your product/solution to assess the fit, timing and competitive advantage, to the business model, revenue growth and potential risks. Last but not least, they assess the team leading the company: their experience in the sector, confidence in their knowledge and passion and ambition to solve the problem in question.

According to a study by Dana Kanze, both male and female founders generally present themselves and their businesses in the same way in pitches. If this is the case, and a female founder ticks all the right boxes, what’s stopping her from getting the funding?

Other than the unconscious biases about women’s abilities, investors asking leading questions in pitching rounds is one of the factors contributing to the disparity in funding.

Dana uncovered that male founders are typically asked around 67% promotion (gains and opportunities) questions, while female founders are asked around 66% prevention (risks and losses) questions. The impact of this is huge: startups asked more promotion questions tend to raise seven times more funding than those asked prevention questions.

It’s time to turn the tables for female founders

Rather than pitching or negotiation training and tips on strategies to secure funding, women need the sector to change. Government-led programs, policies and accelerators are beneficial, and a rise in women-focused angel investment groups and incubators can also help to address funding disparities.

“To put it simply, women need more capital, not advice. I’m delighted to see that at least new female angel syndicates are forming (Alma Angels, Angel Academy, SIE ventures) and investment platforms such as ODIN are helping to get more female operators investing. This is the catalyst we need to start changing the stats," explains Nina Tumanishvili, UK chapter lead for Women in Tech Org.

VC firms and investment also need to change. Clear DEI targets and goals need to be set to achieve 50/50 female and male investment committees, and diversity and inclusion needs to become a part of the decision-making process.

Businesses’ long-term value that’s not only monetary, but also valuable to society and the planet is something else that VCs need to start considering. We’re living in tumultuous times and something like the climate crisis isn’t going to go away until everyone in society steps up. For investors, this means backing businesses that are doing something about it.

Paul Miller, Managing Partner and CEO at Bethnal Green Ventures tells us, “It’s good business sense to invest in diverse founders.The best founders of businesses that are trying to have a positive impact on the world are going to come from a whole range of backgrounds. They’re not going to be one type of person.”

The change we need to see won’t happen overnight, so until then, here are a few tips Tessa shared in a recent conversation with us, for aspiring female entrepreneurs:

• Taking proactive steps to preempt the conscious and unconscious biases will help you overcome them. For example, answer any negative questions with a promotion response to flip the narrative back to the positive gains and opportunities your business offers.
• Add details early on in your pitch deck to prove that you’re commercial and ambitious.
• To be taken seriously, you’ve got to prove your credibility, experience and expertise in your field. You can do this by showcasing the organisations that you’ve previously worked with or have backed your business concept.
• Finally, you must be mentally prepared for the fact that you’re raising with the odds stacked against you. Don’t take the rejection personally, everyone experiences it.

Hear more from Tessa and Paul, as well as Ariana Alexander-Sefre, Founder & Co-CEO at SPOKE and Erika Brodnock, Co-Founder and CEO of Kinhub and Research Officer at Extend Ventures in this TechFlix documentary.

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