“There is no doubt that as a woman, I’ve hard to work harder to prove myself in [the financial services] industry. But that has made my achievements all the more rewarding”, Marianne Harrison, first female President and CEO of John Hancock
A recent government-commissioned study revealed that less than 1% of UK venture capital funds are invested in start-ups with an all-female team. In money terms, that means women get 1p for every £1 men do. 83% of all UK VC deals made are with all-male teams, which equates to a staggering £5bn of investment. These statistics paint a depressing picture of gender diversity in the investment world. Securing VC funding is crucial for entrepreneurs to succeed – six of the top 10 global companies trace their success back to their initial investment. While other industries make strides towards gender equality, entrepreneurship appears to still be a man’s world.
Why aren’t VCs investing in women?
Industry bias. The sectors generally favoured for investment by venture capitalist firms are notoriously male-dominated. Artificial intelligence, cybersecurity, fintech and biotech are considered the key investment priorities, yet 93% of European tech start-up deals involved companies with no female founders. With fewer women climbing the ranks within these specific industries, their underrepresentation is unsurprising. Initiatives such as those which encourages young girls to be interested in STEM subjects are beginning to gain traction and are an important step in ensuring equality from the ground up.
Fewer women apply for investment. The government study highlighted that only 5% of 4,000 pitch decks surveyed were from all-female founder teams and 20% were from mixed gender teams. This leaves 75% of all applications to all-male teams. Research shows that women are less likely to take risks and believe in their own ability, whereas men are generally much more comfortable in asserting their confidence and putting themselves forward, as they traditionally are more likely to be taken seriously. For example, it has been found that, on average, a man who only has 60% of the necessary qualifications will still apply for a role, whereas a woman won’t apply for the same role unless they fulfil 100% of the criteria. This ingrained variation in self-belief simultaneously drives men and discourages women, exacerbating the gender gap.
The majority of VC decision makers are male. Women are underrepresented on both sides of the investment process: only 13% of decision makers at UK venture capital firms are women, while almost half of all investment teams in the UK have no women in the team at all. It’s human nature to align ourselves with those whom with we identify most. Thus, men are more likely to invest in other men from a similar demographic. It’s not enough to encourage women on the path to entrepreneurship; the venture capitalist landscape also needs to change. 29% of junior roles at venture capitalist firms are currently filled by women; hopefully, as they progress up the ladder to decision makers, this will start to even out the playing field.
The legacy of male privilege. Even as the tide is turning in terms of gender equality, the legacy of male privilege continues to permeate the business world. Men tend to have better business networks, meaning they are more likely to have a connection to a venture capitalist firm. ‘Warm’ introductions increase the likelihood of funding 13 times as much as applications without a recommendation. On top of that, women can be seen as a riskier investment proposition because of the business barriers they face due to their gender. For this to change, stereotypes have to be broken down, women have to be championed into positions of influence and stories of their success shared.
Why should VCs invest in women?
The benefits of diversity in the world of business are clear. Whether in terms of gender, race, ethnicity, sexual orientation or religion, a diverse team means multiple perspectives, which drives creativity and productivity. Whether an established global conglomerate or a fledgling start-up, businesses need to recognise diversity as the valuable asset it is and drive change.
Female entrepreneurs represent huge untapped potential in the start-up market. The Women’s Business Council estimates that if women in the UK founded businesses at the same rate as men, there would be an extra one million entrepreneurs contributing to a £60 billion economic boost by the end of the next decade.
The impact of not investing in women is profound. Founders decide what products and services are offered, influence the company’s mission statement and define the public face of their company. If a mere 1% of funding goes to female founders, that leads to a massive underrepresentation of a demographic that accounts for half of all consumers. The consumer landscape is heavily skewed by male perspectives, leading to both consumers and businesses losing out. The success of female-led start-ups such as Nubian Skin, Stemettes and DAME exemplify how a woman’s unique view of the marketplace can allow them to carve out their own niche.
That’s not to say that women are only successful in gendered services. Women in business have been found to have higher emotional intelligence, be better communicators and foster a greater sense of employee loyalty. These benefits, among many others, make female and mixed leadership teams thrive – just look at the start-ups GrabTaxi, BorrowMyDoggy and Starling Bank. The positive impact of female leadership can be tangibly measured – a non-profit research report found that Fortune 500 companies with more female board directors outperformed those with the lowest female representation by 53% in return on equity, 42% in return on sales and 66% in terms of return on invested capital.
Recruitment Entrepreneur’s investment in women
At Recruitment Entrepreneur, we strive to break the venture capitalist tradition. So far, we’ve invested in eight female directors: Miranda Hilton, Group 8; Lynda Barnes-Mullin and Sarah McGrath, 360 Search; Alison Watkis, Clarus Education; Kate Barclay and Louise Walsh, Total Facilities Recruitment; Laura Drysdale, Meraki Talent and Elaine Tyler, Venatrix.
37.5% of our portfolio partners are all-female or mixed gender teams. They are industry leaders in predominately male industries such as financial services, legal and SaaS sales.
Greg Hollis, managing director of Recruitment Entrepreneur, comments on the success that female founders have found at RE:
“Being your own boss within our unique model allows you to dictate your own work-life balance. Several of our founding partners, both male and female, work around their family schedule. In each new founder we look for dedication, ambition, great leadership potential and an outstanding track record – everything else can be planned for.”
The statistics of women and venture capital show that there is a long way to go until entrepreneurship is no longer considered a boy’s club. Yet the fact that the skewed representation is beginning to gain traction in the media reflects a change in collective society’s attitude. The numerous initiatives supporting women on the path to entrepreneurship are a step in the right direction. But venture capitalists must also bear the onus of championing female founders by challenging their own processes, structures and unconscious biases.
Last year only 9% of our applications for investment were from women. 54% of those women who applied progressed to the next stage, compared to 22% of male applicants. Be the change and apply today: