Although it seems that in 2022, the glass ceiling should have been clearly shattered by now, women should keep their hammers to keep battering away at the old regime. Although we are living in modern times, there is still a large disconnect between the venture capital funding that female-led companies receive compared to their male counterparts. It is time to stand up and speak up so that the glass ceiling can be shattered once and for all.
Numbers Don’t Lie
The story is rather bleak. Despite the fact that there is more funding going to all-women entrepreneurial teams than in years past, there is still a disparity between female-led businesses receiving fewer investment and lending opportunities than their male counterparts. According to Forbes Magazine, women-led startups received just 2.3% of venture capital funding in 2022. This paltry amount is even more appalling than the fact that only 12% of decision-makers at venture capital firms are women.
So what are women doing to get the funding they need? Common knowledge says that women will tend to have better outcomes if they look for investments from female venture capitalists, as “female VCs are twice as likely as their male counterparts to fund women-run businesses.” However, this tactic can also backfire, as female-to-female investments can lead to the presumption that the money was given solely because of gender, rather than skill or business plan. This can make subsequent funding challenging to obtain.
Clearly, more women are required in every stage of the process in order to create more continuity of funding, no matter what a startup’s gender affiliations. Another benefit to having more female VCs is they could continue to fund women’s projects. The researchers explain, “Currently, female VCs are involved primarily in early-stage fundraising rounds, where the amount invested is lowest but the uncertainty, and risk, are highest. If more women were successful in raising large funds, our results could change, as later-stage female investors carry forward the baton from early-stage female investors and provide female entrepreneurs with the follow-on capital they require.”
Mind the Gap
There is no doubt there are several reasons why women still have less access to venture capital than men. In this pandemic, companies are trying to mitigate risk and may be falling back into old habits of the “boy’s club,” with little to no regard for innovative or female-run companies. Instead of cutting-edge companies, they are likely staying inside their networks and sticking with the status quo, supporting the same types of companies they have helped in the past. And these companies, research shows, tend to be run by males.
One of the reasons for this has to do with who owns a partnership in a company. According to the Harvard Business Review, of the 12% of decision-makers who are women at venture capital firms, only 2.4% are female founder partners. In general, it is these founding partners who “control an outsize proportion of a firm’s investment decisions.”
If they knew what was good for them, companies would invest in women-led startups, who “ultimately deliver higher revenue — more than twice as much per dollar invested,” a Boston Consulting Group analysis found. Perhaps because of the struggle for capital, these business plans are top-notch, and being turned down in the past makes women-led startups more resilient.
Another benefit of a woman-led company is that they tend to hire more women as well. The Harvard Business Review explains. “Startups with a female founder fill their staff with 2.5 times more women, according to an analysis by Kauffman Fellows, a program designed to accelerate entrepreneurs’ success. Companies with a female founder and a female executive hire six times more women.” Clearly, having more female business founders will change the game in a myriad of ways.
It is time for some action. As the father of two young women who have entrepreneurial aspirations, I believe it is beyond time to level the playing field. In the UK, the Women Angel Investment Taskforce is launching a “Women Backing Women” campaign to help improve accessibility for women. In the United States, we need to make it more possible for women-led companies to make “warm” approaches to investors, by creating more networking opportunities that allow women to create relationships. Cold calls are a thing of the past and do not result in many investment opportunities.
Women need to keep fighting, hammers in hand and voices raised. The system must change because women-led companies deserve just as much funding as men do. The investment is worth it. Because of more scrutiny, women-led organizations are often more dynamic and resilient, and the return on the investment will be higher.