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The challenging landscape for female founders

 

While progress is being made to tackle the gender imbalance among founders and the barriers to entry for women, it is slow, despite the proven business benefits.

Female founders continue to create and run some of the UK’s most innovative and successful startups. Yet there remains a distinct gap in the advantages afforded to female founders and entrepreneurs compared with their male counterparts.

And Covid-19 threatens to widen that gap. Many female founders run consumer-facing businesses, which have been hit particularly hard by the pandemic.

Statistically, female founders receive less funding and investment than men. It is also more likely that women will have to split their work time with looking after small children and home-schooling, again an issue exacerbated by lockdown.

The challenges for female founders

In 2019, the government-commissioned Alison Rose Review of Female Entrepreneurship revealed that just one in three entrepreneurs in Britain were women. It predicted that the UK could add a further £250bn of value to its economy if women did not face the same obstacles as men.

On average, these female-led businesses were 44% of the size of male-led ones, in relation to economic contribution. Around 6% of British women ran their own companies, compared to almost 11% in the US and over 9% in Australia. UK women also launched businesses with 53% less capital than men.

The Rose Review outlined five key barriers that lead to lower rates of entrepreneurship among women:

  • low access and awareness of capital;
  • greater risk awareness;
  • perceived missing skills and experience;
  • disproportionate primary care responsibilities;
  • and lack of relatable sponsorship/mentorship/role models.

It put forward recommendations to tackle such issues, such as a target of 50% more female entrepreneurs by 2030, and established the Investing In Women Code2, which requires financial institutions to publish the gender split of their business-funding commitments on an annual basis.

The business case

Not only is it important for gender balance and diversity of thought, the numbers show that startups run by women are statistically better investments.

A study from Boston Consulting3 looked at the experiences of 350 companies in its programme for support and mentorship for entrepreneurs, 92 of which had at least one female founder. The women also raised less money than the men: an average of $935,000 compared to $2.12m for all-male executive teams.

Despite raising less capital, however, the female-led startups generated more than the men - $730,000 compared to $662,000. The gap was even more significant in a straight dollar for investment dollar ratio – startups run by women generated 78 cents per investment dollar compared to just 31 cents by male-led companies.

The investment gap

A separate Treasury-backed report from the British Business Bank4, in collaboration with Diversity VC and BVCA, found that for every £1 of venture capital investment in the UK, all-female founder teams get less than 1p. By comparison, all-male founder teams get 89p and mixed-gender teams get the remaining 10p. That means at current rates, for all-female teams to reach 10% of all deals will take more than 25 years and that 83% of deals that UK VCs made last year had no women at all on the founding teams.

Alice Hu Wagner, Managing Director, Strategy & Economics, British Business Bank says experience shows that simple solutions are attractive but “flawed”. She argues that mandating female decision-makers risks tokenism.

“Earmarking ‘women only’ money does not address underlying closed networks and experience gaps,” she says. “More seriously, both approaches ignore the fact that women are not the only people under-represented in VC firms and their investments. We need new approaches to addressing these issues.”

Progress is being made

Despite significant gaps in most aspects for female founders in the UK, progress is slowly being made. The share of funding to female-led firms has doubled in less than a decade, according to a report published in October 2019 by the Female Founders Forum – a joint Entrepreneurs Network/Barclays project.5 

Female-founded startups are receiving a growing share of investment. In 2011, 11% of startups that raised equity investment for the first time were female founded. In 2018, this figure had nearly doubled to 21%.

Of the 6,147 equity deals made in 2018, 17.9% went to companies with at least one female founder, down from 18.2% in 2017. However, the total value of investments in businesses with at least one female founder in 2018, as a percentage, was 11.4%, up from 9.9% in 2017.

Once they received an initial investment, female-founded startups were just as likely to raise additional rounds of funding compared to non-female-founded firms (52% vs 51% for startups without a female founder).

Among startups five or more years on from their first raise, female-founded startups were more likely to have secured a second funding round (66.5% vs 62.8%) and marginally more likely to have secured a third funding round (42.8% vs 41.8%).

“With the trust of 24 million customers and nearly one million businesses, inclusive UK economic growth is essential for our success. An important part of that is helping to make the UK the best place for a woman to start and scale a business,” said Juliet Rogan, Barclays’ Head of High Growth and Entrepreneurs Coverage.

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