Mind the gender funding gap

Last month the World Economic Forum published its Global Gender Gap Report 2022 (GGGR). Although the report wasn’t entirely devoid of positive moves, as Managing Director Saadia Zahidi states in the Preface, “the progress towards gender parity is stalling”. Katie Sandow explores the issue in this blog.

The release of the report trended on LinkedIn, with the focus in particular on female founders facing a funding gap. 

More women are starting businesses, but why?

The report shares that there’s been an acceleration in the number of women starting businesses, with women founding at a slightly higher average rate than men (GGGR p.35). Women founders have actually doubled in the last five years. 

While this feels like good news on the surface, the report does note that job scarcity, particularly during the pandemic years, was a reported driver for women founders. This makes sense when you look at other research, for example the 2021 McKinsey report into the impact of the pandemic on women’s employment. 

It notes that the three major groups experiencing some of the largest challenges were working mothers, women in senior management positions and Black women. According to research by the McKinsey Global Institute, women’s jobs were found to be almost twice as vulnerable to the pandemic as men’s jobs.

Job scarcity seems to be only one of many reasons why women might be pushed to start their own business. 

The funding gap

Despite the uplift in women starting their own business, the dollar investment in women-owned businesses still represents a minor share of the amount directed towards men-founded businesses. In 2019, the percentage of total investment in all female businesses was 3%, having dropped 4% from 2018. In 2020, that number decreased further to 2% and remained at 2% in 2021 (GGGR, p.35).

The European Women in VC (IDC) reports similar numbers, with women founded startups raising just 1.8% of investment in Europe in 2021. Mixed gender teams raised 9.3% while 89% went to all male founders. (IDC p.8)

The world of VCs

The world of VCs is riddled with the gender gaps you’d expect once you see the impact lower down the food chain. 

The European Women in VC (IDC) found that women make up only 15% of VC General Partners in the EU. There’s limited gender parity on advisory boards, and within the broader VC ecosystem, 4 out of 5 investment committee members are male. (IDC p. 9)

Possibly the most depressing statistic of all is that 23% of VCs think that having a Diversity and Inclusion strategy at the portfolio level is extremely important to their LPs. To put it another way 77% of VCs don’t think that this is extremely important. (IDC p. 9)

If there is good news, it’s that women VCs do appear to be moving on and setting up their own funds, which would hopefully lead to more investments to women-founded businesses and a closing gender gap. 

So what?

It’s clear from the data that there are problems within the startup and funding ecosystem at a number of levels. It’s unlikely that this is just about the investors, but in fact is about all of the businesses that exist to support founders in starting and scaling their businesses. 

We’re not talking about a minority, niche customer group, we’re talking about a significant proportion of the market that isn’t being effectively served. 

I don’t believe that the majority of the businesses within the startup ecosystem are purposefully and proactively not serving women-founded businesses. But it’s time for them to proactively start serving them. 

  • Are you communicating your diversity policies? (⅔ of VCs do not proactively communicate their diversity policy to the market (IDC p.31) )
  • Are you proactively communicating and marketing to diverse audiences?
  • Is the culture of your business accessible to broader audiences?
  • Do you have processes that enable you to look at opportunities outside of your own experiences?
  • Are you proactively creating a diverse team inside your own organisation? 

We all need to get better. We shouldn’t be seeking to narrow the gender gap, we should be seeking to close it. 

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