Female Only VC Funds Don’t Necessarily Help Female Entrepreneurs
A recent report from European Women in VC revealed that while 2021 was generally a great year for startup fundraising, precious little of that money found its way to female-led startups. Indeed, the data shows that just 2% of available venture capital went to all-female startups, which is a dip from the already rubbish 3% in 2020. Incidentally, it’s perhaps worth noting that mixed teams did little better, securing just 9% of available capital.
In 2019, a report from the Boston Consulting Group (BCG) exposed the stark realities of equality in entrepreneurship around the world. It argued that if the rates of entrepreneurship were equal between men and women that the global economy would grow by $5 trillion. This represents a growth in global GDP of 6%, which to put that into context is slightly higher than the recent economic forecast from the World Bank of the hit to global GDP from COVID-19.
In a separate report, BCG claimed that this premium is possible because startups run by women tend to be stronger performers than those run by men. Indeed, female entrepreneurs were found to generate roughly twice the financial return on investment for backers than their male peers.
“It has recently been proven that a company with more women in the driving seat and more engagement in the running of a company, makes for more balanced and successful businesses with a happy staff compliment and sound work ethic”, says Helen Ruth Pein, CEO of Goldrange Resources. “Female led companies provide an opportunity for the other 50% of the skilled work force to be employed by allowing flexibility and understanding around the role of a professional as a mother whom in other circumstances may not be in a position to practice in a fast paced well-paying profession.”
A recent report from the Innovation Finance Advisory for the European Commission and the European Investment Bank (EIB) highlights the ongoing challenges faced by female entrepreneurs in access to funding and support to create and scale their businesses. The report highlights the lack of female representation among both founders and investors as a contributory cause.
A commonly proposed remedy to this situation is for women to take a greater role in the investment community, and for these female investors to then back female-led businesses. Unfortunately, research from INSEAD argues that such proposals may actually end up doing more harm than good in terms of ensuring greater equality of investment into startups.
Indeed, the study shows that female-owned startups that get backing from female venture capitalists are two times less likely to secure any additional funding compared to startups backed by male investors. It’s a finding that goes against the notion that the gap in female entrepreneurship can be resolved by ensuring there are more female investors.
“We suggest the reason for these results is not that female investors aren’t good at picking or supporting young startups. In fact, we find that the gender of investors makes no difference for male-founded startups. However, for female founders, receiving support from a woman affects the way they are perceived by other investors,” says the researchers explain.
“We saw in a series of experiments where our participants evaluated pitches by male and female founders that female founders who received support from a female investor were perceived by observers as less competent, and consequently the business idea as less promising.”
As a result, it seems that while well-intentioned, the desire to have more women investing in women can both place an intense burden on female investors but also undermine the long-term success of female entrepreneurs.
“Interestingly, female founders who receive investment from both male and female investors seem to do very well. This indicates to us that the practice of matching female investors to female entrepreneurs might be counterproductive. Instead, venture capital firms and their startups might benefit more from building inclusive investment teams,” the researchers explain.
This is perhaps somewhat concerning, as last year a group of 25 female investors from around Europe called for a €3 billion fund of funds specifically for female-led venture capital firms in order to better represent women’s interests and help to support female-led startups.
The proposal, which was made by the European Women in Venture Capital Group, was designed to tackle the ongoing challenges female entrepreneurs face in raising money. The proposal was warmly welcomed by Mariya Gabriel, European Commissioner for Innovation, Research, Culture, Education and Youth, who said that “more diversity at the investor level leads to more diversity at the portfolio level.”
If the INSEAD research is correct, then this assumption may need to be revisited and alternative approaches examined in order to close the gender investment gap and ensure that female entrepreneurs really get the support they need.
Source by www.forbes.com