by Lionesses of Africa Operations Department
How can one truly compare the funding of male founded companies with those female led? To simply state that there is an iniquitous relationship between funding for male dominated companies and those female - which at first (second and third) glance does appear to be the case, opens one up to the answer that perhaps one is comparing apples with pears. That it just so happens that of the particular set of companies funded, the male dominated companies are ‘better’, more ‘fundable’ than female ones, more ‘noticeable’, or ‘better educated’ (obviously, ‘better’ in all these contexts is very, very subjective - just ask Richard Branson who left school at 16), but there is no doubt (here from ‘Africa: the Big Deal’), that at least a top western university on the cv makes a huge difference to funding success.
Pitchbook also recently reviewed the world’s top universities (sorry, Africa did not make the cut) vs the amount of funding raised by Undergraduates vs Grads, vs Female (here) and indeed there is a stark difference. Stark. Even for the top US university (and this is not representative of total funding as that just increases the disparity), Stanford (the no.1) raised US$73 billion of which US$5.1 billion went to female founded. As a Grad the numbers improve at Harvard where the total raised was US$173 billion vs $50.5 billion for the female founded companies - not a bad figure, but then the numbers drop fast for women at other universities. So it is not a surprise when we see in the States (again from Pitchbook here): “In 2021, companies founded solely by women garnered 2.4% of the total capital invested in venture-backed startups in the US.” (and their numbers for 2022 are not looking much fun either). Tiny!
Potentially a number of other factors that may also be active at the time are often mentioned, such as better presentation skills, a self assured founder (obviously helps Adam Neumann!) etc etc. Perhaps too the sector is ‘hot’….perhaps ‘FemTech’ is not considered as ‘Tech’… (and yes we have heard that excuse…), or the home country more attractive thanks to tax, law, and so on…
A group of researchers, led by the International Finance Corporation (‘IFC’, part of the World Bank Group), Women’s Entrepreneurship Finance Initiative (‘We-Fi’) and World Bank Africa Gender Innovation Lab, in partnership with Village Capital, (here) found that “…financial capital is one of the most critical resources for a growing company: young companies that access outside financing are able to grow up to 30% faster than those that do not…
Female-led startups, or those with at least one female founder, receive a disproportionately small percentage of the flow of global venture capital. Only 11% of seed funding capital in emerging markets goes to companies with a woman on their founding team, and the figures are even lower for later-stage funding, despite the overwhelming evidence that investing in gender-diverse teams leads to stronger business outcomes.”
If you are able to grow 30% faster as a male founded company simply due to an allocation of funding, this is a massive advantage (least we forget, these companies will be competing with female run companies in the big wide world - such use of steroids giving a 30% advantage would be shocking in any sport for example), yet in spite of this there is “overwhelming evidence that investing in gender-diverse teams leads to stronger business outcomes.”!
As the Boston Consulting Group found working with MassChallenge (here): “…businesses founded by women ultimately deliver higher revenue—more than twice as much per dollar invested—than those founded by men, making women-owned companies better investments for financial backers.” Are we looking at the old Tortoise vs Hare story here?
Viewing what happens to a US$1 investment in a male vs female founded or cofounded business, also makes for interesting reading: “For every dollar of funding, these [Female] startups generated 78 cents, while male-founded startups generated less than half that—just 31 cents.”
Of course one could argue that because so few Female founded companies receive funding, it must be the ‘best of the best’ that are in this research and therefore the results are skewed. As it was the numbers were made up of MassChallenge companies that had about 42% female founded vs male companies, so a larger proportion than one would normally expect in such research.
According to the The Mastercard Index of Women Entrepreneurs (here), ‘Sub-Saharan Africa, in particular, has the world’s highest rate of women involved in entrepreneurial activity at 26%’. Indeed as they state “Angola is ranked first among all of the economies analyzed for its “women’s entrepreneurial activity rate” which surpasses that of men.” [Shout out to our large and ever growing inspirational Lusophone membership - trust you are enjoying our new Portal Portugués!]
From that research one should assume that there is a higher amount of finance that goes to women entrepreneurs in Africa. Sadly not as ‘Africa: the Big Deal’ shows us in their review at the end of Q3 2022: “84% of all the funding raised by start-ups in Africa since 2019 ($9.8bn) has gone to either a single male founder, or a male-only founding team. About 15% of the money went to gender-diverse founding teams. Just over 1% of the funding ($146m) has gone to a single female founder, or a female-only founding team.” (here)
So what about Female led companies - does the gender of the CEO make a difference? “In 2022 so far, we’re looking at 97% of the total funding going to start-ups led by a male CEO. And there is no sign of a positive trend here either, as the percentage of funding going to female-led organisations keeps oscillating between 3% and 6% since 2019.”
So we have to be male founded, male run and have gone to Harvard or Stanford? It cannot be that simple - is it? Is it really that simple?
The IFC led group decided to even this out by removing all variables such as founder characteristics, - education level and/or experience, and startup characteristics - intellectual property, sector of operation, geography, or revenue generated - these variables that like atoms swing about refusing to settle long enough to allow us to study the data behind. They compared only those that had gone through the same accelerators, thereby putting all on the same block before firing the starters gun for the race to begin…
Not a perfect answer as funders would still see that there was a female in front of them presenting. But this is by far the best answer we have seen since the day someone stood up and suggested that all auditions for certain professional and famous orchestras would have the candidate playing from behind a curtain, and thereby blind the recruiter and remove any subconscious bias. Overnight, the amount of female members of orchestras magically started to increase (fancy that!), here. Perhaps that’s the answer - blind dates with funders! But we digress…
Analysis (here) by this serious group found the following (and those of a nervous disorder should perhaps look away at this point):
“1. Acceleration exacerbates the gender financing gap in equity financing.
2. Acceleration removes the financing disadvantage female-led startups face when raising debt.
3. The persistent gender financing gap cannot be easily attributed to differences in the quality of the startups, suggesting that investor bias and risk perception may play a role.
4. There are no clear accelerator program design elements that overcome the gender financing gap.”
For 1) and 2), these were not small differences, 2.6x increase for males in equity funding and 2.5x increase for females in debt.
What can we do about this - if such a large proportion of businesses across the globe (and larger than average in Africa) are women founded and led, if a US$ invested in these businesses yields a far higher return from businesswomen…and we have not even touched on the increased positive results for the local communities from female led businesses! We have to find a way forward, there must be something we can do to move this highly sticky dial away from the very low levels of investment (even with that increase in accelerator debt wins - it is still such a very small amount given the small number of accelerators each year, it hardly registers).
Indeed with such little investment and the resultant ‘bootstrapping’ that so many of our membership have had to go through, this actually makes them more investable, especially each time the US Federal Reserve raises interest rates as that has such a large knock-on effect in other countries’ and debt-ridden companies’ interest rates! As the AfDB’s Dr Jennifer Blanke said at the The Global Gender Summit 2019, Kigali: “We know that women are a good bet. We know they pay back. We know they run excellent businesses – and yet they are not getting financed” (here).
Perhaps Elizabeth Edwards, founder and managing partner of H Venture Partners, a female-owned venture capital firm (here) is right when she said: “One of the reasons why it's been hard for female-founded companies to attract funding is that only a small percentage of venture capital dollars are controlled by female VCs.”
We have previously and on many occasions in our articles expressed amazement that any VC or PE fund manager should ignore the small pond teeming with female businesses, but instead fish in the larger lake with thousands of debt laden or equity short male fish lowering their probability to ‘land a whale’, to use an old City trading term, but data doesn’t lie.
Pitchbook point out clearly (here) that: “Check-writing authority remains largely male-dominated and can have significant impacts on the capital-raising process for female founders…
16.1% of VC decision-makers in the US are female, and just 4.5% of firms have a majority female decision-maker population, which means that most institutional investors are operating in male-dominated environments. This narrows the lens through which firms view pitches and investment opportunities. The lack of female representation in these firms has a ripple effect on the founders they invest in as well as the LPs that trust them to generate returns. Promoting and recruiting female check writers can open doors for more female founders and diversify portfolios.”
As Albert Einstein supposedly said: "Insanity is doing the same thing over and over again and expecting different results.”
Data shows us that women founded and led businesses work and are a good investment. What the investment world is currently doing over and over again simply is not working, time to change and bring more women on board in the ‘cheque writing’ arena.
For those who invest in funds, look to those pathfinders who are female and running inspirational VC/PE Funds, they are currently investing in spectacular businesses, support them and most importantly, invest in them.
Diversification is after all the cornerstone of any portfolio.
Stay safe.