A wake-up call to the male-dominated UK venture capital industry: how women entrepreneurs and women investors are reshaping the future of business and innovation
The release of the report by the British Business Bank, which confirmed how little funding women entrepreneurs receive from the male-dominated UK venture capital (VC) industry relative to men, tells us what we already know: the system does not work for women.
This is fairly shocking if we consider that women represent the largest market opportunity globally and female consumer purchasing power exceeds the GDP of China and India combined.
A new generation of women are stepping into entrepreneurship and the data shows that not only do their businesses generate higher revenue (more than twice as much per dollar invested compared to men), they are building new markets with a positive net effect on society.
In the US we are seeing an increasing number of high profile success and investment into women-led businesses such as Stitch Fix or PowertoFly or This is L.
It is perhaps no surprise that many women entrepreneurs focus their business on the female market where women-centred innovation is at its core. They are addressing a specific pain point for the female consumer which is largely underserved or ignored.
This represents a huge opportunity. With so little competition in each female-focused market, rapid growth and market dominance is almost guaranteed providing women can access capital and the support they need to scale their business.
Given that only 13% of VCs are women in the UK and women entrepreneurs receive less than 1p for every £1 of investment (vs 89p which goes to their male peers and the rest goes to mixed gender founders), how will the male-dominated VC community prepare for this new generation of companies?
What’s the cost if they don’t?
They continue to turn their backs on the biggest market opportunity in the world and leave money on the table.
Meanwhile the risk for women entrepreneurs is disproportionately higher than for their male peers. Women must invest more of their time and resources to educate potential investors in order to convince them of the validity of a market the mostly male investor may not know how to evaluate.
It is no surprise that it takes women entrepreneurs longer to raise investment (if at all) which leaves their business more vulnerable to unforeseen external shocks such as Brexit or a client going into administration.
Whilst weaker connections to the VC community is another reason why women entrepreneurs find it more difficult to raise investment, women may choose to sidestep having to deal with individuals who simply ‘do not speak their language’ and who might undervalue or dismiss their business. It’s not uncommon for women entrepreneurs to self-fund for a long time and to grow their business organically through their customers. Perhaps this explains why women’s businesses are more capital efficient: when they finally do raise investment, their management skills far exceed those of most male entrepreneurs who have had lots of money to play with (and waste) from day one.
Women entrepreneurs must also counter unconscious bias.
Not only are women regarded as a ‘non-standard’ entrepreneur’, according to a study published by the Harvard Business Review, women entrepreneurs get asked a different set of questions compared to men which has a direct impact on how much money women raise. This study demonstrates that investors adopted a promotion orientation for male entrepreneurs which meant they focused on their hopes, achievements and ideals, but they adopted a prevention orientation for women entrepreneurs which centred on safety, responsibility and vigilance.
For example, investors would ask male entrepreneurs: “How do you plan to monetise this? or “What’s your brand vision?”. And they would ask women entrepreneurs: “How long will it take you to break even”? or “Are you planning to Turing test this?”
Entrepreneurs who are asked prevention orientation questions raise seven times less as a result.
A report by Deloitte has indicated that women entrepreneurs can add over £100bn to the UK economy over the next 10 years. Given the difficult political and economic climate we are in, there is even greater need to pay attention to women entrepreneurs and to remove the barriers that exist for women.
As the male-dominated VC industry is slow to change, women will seek alternate sources of investment such as crowdfunding and new entrants will emerge which better cater to women entrepreneurs and their businesses.
We are already seeing the rise of female-led VC firms which invest in women entrepreneurs with support from high profile investors such as Melinda Gates. Although many of these new female-led VC firms are in the US it is not difficult to see how this trend will continue to develop on a global scale. In the UK, Allbright has fast become the go-to female-led fund, platform and community for women entrepreneurs.
By 2020, women are expected to hold $72 trillion of private wealth which represents 32% of the total. Women’s overall wealth is on the increase and therefore the female investor will have a growing impact on how and where money is allocated.
Women have made it clear that they want their personal and philanthropic values to align with their investments. Whilst financial performance is important, women take a more holistic approach in that they also seek to invest where they can have a positive impact on society. It is therefore no surprise that women investors are the driving force behind impact investing.
As women entrepreneurs are more likely to build businesses which have a social purpose, are socially responsible or have social impact, it is not unreasonable to assume that more funding will be directed into these businesses by women investors. It follows that as more businesses led by women grow beyond the $1 million or £1 million mark, they are set to have a more pronounced and positive impact on society.
And in a world that is left reeling from previous and ongoing investments in start-ups and companies with limited or no regard for social impact or ESG criteria, what we need more than ever are investors who think differently from the outset and are willing to embrace the wider complexity of the world we live in.
So perhaps the crucial point is this:
women entrepreneurs need impact investors who are also “female-market intelligent”.
These investors are values-based and take a holistic approach to investing. They actively study, evaluate and appreciate the female-market, its nuances and opportunities. They appreciate the benefits of gender-lens investing and understand that women-led businesses are more likely to have a non-toxic and inclusive company culture, are more vigilant in their corporate governance and therefore build a more sustainable business. These investors are cognisant of the gender-penalty women entrepreneurs have to contend with and so these investors are gender-intelligent and check for bias in their interaction. They want to level the playing field for women entrepreneurs in terms of their access to capital and equal opportunity. They use their agency in order to have a positive impact on the world around them. And they are drawn to start-ups with social impact whilst seeking high returns.
It follows that these forward thinking investors have the knowledge and skill to engage and truly value women entrepreneurs and their businesses.
Women entrepreneurs will only seek to work with the male-dominated VC community if they (VCs) start to tune themselves to women’s values, their approach and can appreciate how they are shifting the paradigm of entrepreneurship, innovation and investment for the better.
As CEO of BlackRock, Larry Fink wrote in his annual letter to CEOs in early 2018:
“Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Whilst some argue this was the tipping point for the whole investment industry, perhaps the male-dominated VC community will start to regard women entrepreneurs as their ticket to building a new world that works for everyone-as well as making high returns.
If the male-dominated VC industry doesn’t double down now; if they fail to turbo charge their efforts to enlist the women entrepreneur community in a meaningful way, the emergent women investors are more than willing to power the next generation of inventors and innovators, and ultimately to fund the new generation of women-led unicorns.
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