The funding gap
Conversations with female founders, investors, and mentors
header.search.error
Introduction
There have been numerous studies鈥攁nd a plethora of media coverage鈥攐n the funding gap that exists between women entrepreneurs and their male counterparts. The numbers are stark: in the US, just 2% of investments in startups are for women-led ventures, although 38% of startup founders are women, according to research by the European Investment Bank.1 This reality is even more pronounced for women of color and those in developing countries, and comes at a great cost to gender parity efforts. Because of this funding discrepancy, female entrepreneurs lack equal opportunities to innovate and build successful companies that can contribute to the global economy. Furthermore, there is an abundance of evidence to suggest that women who re颅ceive funding develop businesses that perform as well as鈥攐r even better than鈥攖heir male counterparts, which suggests investors are missing out on attractive invest颅ment opportunities.2
In our 2021 鈥The funding gap: Investors and female entrepreneurs鈥 paper, we examined the reasons behind this discrepancy and identified ways this gap can be narrowed. The objective of this digital follow-up publication is to dig deeper into these discrepancies and evaluate the proposed funding gap solutions. In addition, we look to give voice to women entrepreneurs and investors and learn more from their experiences and advice. Together with our other initiatives, we hope this will contribute to narrowing the funding gap.听
Why is this important?
Unlocking the potential of female entrepreneurs would have tangible economic benefits. The Boston Consulting Group (BCG) estimates that equal participation in entrepreneurship would raise GDP by 3鈥6%, boosting the economy by up to USD 5tr.3 Female entrepreneurs are also more likely to create new jobs, help local economies, and reinvest their earnings into the health and education of their families. Furthermore, startups founded and co-founded by women appear to be better investments. On average, women generate 78 cents of revenue per dollar invested, compared with 31 cents for men, according to BCG research.4 In addition, in 2021, female founders reached exits quicker, taking 6.7 years versus 7.7 years for the market overall.5听
Bonnie Lyn de Bartok,听founder of听The S Factor
Kimberley Abbott,听founder of听Vested Impact
Michelle Lee,听founder of I'm Soul Inc
Tatyana Eliseeva,听co-founder of HealthCaters
Networking
Investors almost always rely on their network of colleagues and service providers to source financing. Academic re颅search has demonstrated that having a strong network in the venture capital (VC) space plays a critical role in deal sourcing, deal syndication, and decision-making.6 Men are much more likely to be part of a social network that in颅clude other men, while 鈥渕ost of the non-investing women did not know any female peers or role models who were an颅gel investors.鈥7 This means that male entrepreneurs are more likely to receive鈥攐r have access to鈥攔elevant guidance from their network, resulting in higher motivation, valida颅tion of their thinking and business model, more useful infor颅mation around vendors and clients, as well as useful inputs in their business plans.听
Leveling the playing field
People鈥檚 tendency to like people who look like, act like, or remind them of themselves is referred to as homophily. Homophily frequently manifests itself in the venture funding world, where the overwhelming majority of investors are male (with 70% of these being white males).9, 10 Indicatively, only about 12% of decision-makers at US VC firms are women.11 Among UK VC investment teams, women hold just 13% of senior roles.12 In Europe, 15% of VC general partners are women, having access to just 9% of total assets under management.13 Female representation in emerging markets, excluding China, is only about 8%. China is a notable excep颅tion, with 15% female representation, which is above the per颅centage for developed countries.14
Finding alternative sources of funding
Traditionally, venture capitalists have calculated that about two-in-ten investments will generate most of a fund鈥檚 profits.18 If a fund hopes to achieve a 20% return, then those two-in-10 investments must generate, or return, between 20鈥30 times the money invested into them. Investors in these compa颅nies eventually require an exit, to allow for monetization, ei颅ther via an IPO or through a trade sale. Not all target compa颅nies fit this accelerated growth path. VC funding is appropriate for certain, but not all companies, as many do not fit this specific high-growth profile.听
Conversations with female founders, investors, and mentors