Why Men-led startups raise more funds than women
This is not a gender war vibe kind of article, I do not typically support a ‘men vs. women’ attitude as I believe we are made differently and have varied potentials. However, data suggest some interesting yet troubling facts. I believe Investors and entrepreneurs (both male and female) will find this article rather interesting.
In French, the term “Entrepreneur” translates to “Adventurer”. It is indeed a challenging adventure, and even more challenging when you are a woman. It’s 2022, yet people are still prejudiced about a woman running a business. Interestingly, this includes the employees working in the company and investors seeking to invest in the business.
Venture capital is the springboard that allows businesses to scale at their earliest stages. Not all founders can scale their startups with their personal funds, hence why seeking early-stage investments is crucial to the development of startups.
Although in the past decade, women's participation in startup deals has increased, the industry is far from being balanced in its diversity. In 2021, African startups raised approximately $5 billion, and less than 1% of the money raised went to startups with only female founders. This trend is not peculiar to Africa, as globally only about 2.3% of funding went to women-led startups in 2020. Capital often goes to male-dominated industries, and even in industries considered to be women-led, men still get better funding.
Technically speaking, for every $1 raised by all-female founding teams, all-male teams received $82.
Although there are no outright discriminatory barriers to women founders as companies don’t openly say that they do not invest in female-led startups, there still seem to be an unspoken bias. The majority of Women-founders in Africa to have raised $1 million or more are mainly white founders or CEOs who studied abroad.
Data suggests that a female founder is more likely to raise funds in Africa if she’s white or studied abroad.
As earlier mentioned, It’s not an African thing, women globally have a harder time raising money than men, and considering Africa’s early stage in the startup space, it is to be expected.
A female co-founder said that during meetings with investors, they often turn to her male co-founder for answers to their questions, even when she clearly has more technical experience. In an interview with startuptalky, Anshula Kapoor, Founder of Fankind said “ I am still asked ‘will Sir be joining us?’ or ‘is your senior on his way’. I can literally see their faces fall when I tell them I am the Sir and will be commanding the meeting”.
Women founders often feel obligated to have a male co founder in order to boost their chances of securing funding.
One might quickly conclude that the low participation of women in tech (which attracts the majority of investments) is why we don’t have enough female-led startup deals. However, it is not enough to increase the number of female founders. Even with more women starting new companies, investor bias towards women-led startups needs to be addressed.
Here are a few points to highlight the disparities faced by women founders around the world:
Tenacity Bias/Stereotype: The traits expected from successful entrepreneurs are often seen as male-oriented; the “hustle” and ability to put everything on the line for the company to survive. These biases about tenacity often become the basis for gender discrimination. For example, a common thought is that “what would happen to a start-up if the female founder becomes pregnant while growing the start-up?”
Social Capital: Although financial capital is vital, social capital is essential to a startup’s success. Having a plethora of industry mentors, friends, and supporters often come in handy when building a startup. Building such social capital is a typical male culture. Raising funds has often been a numbers game, the more investors you speak to, the more likely you are to get positive responses.
Few Female Investors: Although there are no specific data to back this up, most of the VCs you’ll meet are men. Naturally and perhaps unconsciously, they end up funding more men than women. The first things investors look out for are the founders and their team members. Investors always want to be able to relate to the founder. When an all-male investor team is trying to judge an all-women startup team, it’s highly probable for the tenacity bias to step in. If more successful women should venture into start-up funding, it would help in fixing the ongoing subtle discrimination. Most angel investor firms still don’t have a single female partner. Fortunately, it’s getting easier for women to raise money as more women launch venture capital funds targeted at them. For example, firms like FirstCheck Africa provides funds for only female founders.
Advice to female founders:
- Network!! : Your social capital plays an important role in getting funded. One important reason for the gender disparity is that men typically have solid networking. Collaborate with other female entrepreneurs and network with people for inspiration, ideas, and advice. Be confident in approaching others and make yourself approachable. Also, do not ignore the power of social media.
- Be confident: It’s only when you think of yourself as confident that others will treat you the same way.
- Explore funding opportunities for women-led startups: There are female-led funds and funding initiatives specifically for women entrepreneurs.
It is not an easy task to secure funding for a startup. For women-led startups, it is even more difficult. I believe that as more women venture into startups (especially Tech), the subtle discrimination will disappear and women will eventually be seen to be as tenacious as they truly are.
The solution, however, is not for VCs to suddenly start funding startups simply because they’re founded by women. No, not at all! Investors should not suddenly become prejudiced in giving everyone the same level playing field.
The solution is to remove the pattern of thinking that prevents VC firms from recognizing the great potential of ideas presented to them.