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The gender funding gap is real - but what can be done about it?

1p in every £1 of venture capital funding goes to female entrepreneurs and the likelihood of obtaining venture capital backing increases with each male on the board, despite some evidence that female-founded businesses provide stronger returns on investment. 

28 Feb 2019

But what's at the root of the disparity?

The statistics in part reflect the fact that fewer women become entrepreneurs. One cause is gender stereotyping contributing to the persistent gap in boys versus girls studying STEM subjects which can lead to careers in tech and science. And the role of social conditioning doesn't end with GCSE results. If women are more likely to be primary carers, they may well be less likely to take on the sort of risk associated with founding a start-up.

But even taking this into account, there is still a significant disparity in funding decisions.

Of course, getting venture capital can be a double-edged sword for businesses. If the bar for female founders really is set higher, that may have some positive implications for those founders, as they are forced to hone their market data and pitch to investors, and don't suffer so much dilution of their equity. But without outside funding, many businesses are unable to invest sufficiently in product development or achieve economies of scale necessary for growth.

Why is so little funding offered to women?

Underrepresentation and negative stereotypes are two key obstacles facing female entrepreneurs seeking funding.

Venture capital firms are heavily male-dominated, so funding decisions are largely made by men. Unconscious bias may well play a part in these decisions: we are more likely to perceive those who are like us as being competent and approachable. From childhood, we are surrounded by gender loaded-language which assumes men to be assertive and rational whereas women are presumed to have soft skills and be empathetic. Undoubtedly this affects funding decision to some extent. One can even see this in the different language used to describe male and female founders. Whereas a man may be described as a "rockstar developer", a woman is more likely to be described dismissively as a "mumpreneur". When men also hold prejudicial views towards women, the problem of an unconscious bias is exacerbated and talented women are obstructed.

Another issue may be that female founders are more likely to focus on products aimed at female consumers, such as femtech. While this is a fast-growing area, it's also one that male VCs may have less knowledge of (and may even be a little squeamish about). This means that female founders may have to hone their pitch to VCs more tightly and ensure that they target VCs with an understanding of their market.

This might seem like a rather bleak picture but there may be a silver lining. There are VC's who, noticing women being overlooked, focus their investment on businesses led by women. Some funds will withhold funding if there are no or less than a minimum number of women on the management team. Others direct funding towards women and minority men. The motivation for this is not social-impact or self-righteousness but that those female led businesses are valuable, untapped opportunities.

It is regrettable that female businesses are still neglected by investors making funding decisions. With increased representation on VC's decision making panels this will probably change. Efforts should be made to raise the profile of female entrepreneurs and their successes to both encourage women to take the plunge and more VC's to invest. This would be the most effective way to bring about meaningful change.

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