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Women are 37% more likely than men to be self-funded. Photograph: Alamy
Women are 37% more likely than men to be self-funded. Photograph: Alamy

Why women entrepreneurs are far less likely to be funded

This article is more than 8 years old

A new report shows digital startups founded by men are 86% more likely to receive venture capital investments – what needs to change to stop the bias?

Shivvy Jervis
Shivvy Jervis

The first quarter of 2015 saw a 66% year-on-year boost in the influx of venture capital (VC) funds to the UK, standing at an impressive £459m. According to research from Oxford Economics, the digital tech industry will contribute £18bn to London’s economy alone by the end of this year. This is sit up and take notice stuff.

The reaction to a recent episode of my video series Digital Futures, entitled ‘What it’s really like to be a woman in tech’, genuinely caught me by surprise. Views and social engagement skyrocketed and analytics revealed 75% of the viewers were men.

The representation of, and playing field for, women in science, tech, engineering and maths (Stem) and digital clearly continues to be seen as newsworthy.

As part of my role at Telefonica, I helped unveil the results of the first findings from an ongoing piece of research called Startup DNA. This polled over 220 early-stage, digital startups in the UK in a bid to reveal the social makeup of Britain’s startup ecosystem.

Two particular findings jumped out – it seems that male entrepreneurs are 86% more likely to be VC funded than their female counterparts and men were 59% more likely to secure angel investment. So why is VC investment displaying such a strong gender bias? And why is the value driven by diversity in larger companies failing to read across to startups?

One possible factor is the limited number of females in the sector – just one third of the UK startup ecosystem is made up of women. However, participation aside, what else might be at play here?

Old boys’ club: fact or fiction?

“A lot is said about female entrepreneurs not getting funding down to the dominance of an old boys’ club in VC funding circles,” says startup accelerator Wayra’s chief executive Gary Stewart.

He adds what he sees as some critical context: “Although I believe this culture does exist, our research did reveal that some women might potentially be more reluctant to hand chunks of their business over to investors.”

The research found that of those polled, women were 37% more likely than men to be self-funded. Whether this is out of choice or necessity has yet to be determined. Could women be counting themselves out?

I’d like to share a frank observation from my interactions with aspiring female founders: I’m astounded at the number who hold themselves back from getting in front of the big league VCs.

Maila Reeves, director of strategy at ProFinda and a prominent ‘woman in tech’, says: “By nature, we women don’t like to go out and shout about the amazing things we’re doing ... but really, we have a duty to do that.”

I personally mentor eight young people aspiring to break into tech and media and I notice more reticence among the females in declaring their star quality to potential employers or investors.

The tech talent pipeline is flawed

Many would agree that the startup arena is one of the most democratic vocations with barriers to entry remaining low. So why aren’t enough women entering the fray, or staying in?

Widening this beyond the early-stage, digital startup scene, it was found last year that it would take one million more women in Stem occupations to reach a critical mass of 30% of the UK Stem workforce. Not just that, only half of female Stem graduates go on to work in Stem roles, blogs submarine engineer Lucy Collins.

Despite what some folks might have you believe, I don’t see the issue here about “not enough men hiring enough women”. The majority of my male industry peers often confide that they wish the CVs coming through had a healthy gender mix ( 90% are from men).

A question of scope?

The Startup DNA report claims there’s a significant bias in the themes that men and women cover as startup founders (in the UK at least): it found that few males set up lifestyle businesses and a very small amount of women delve into finance-related ventures.

“People often fix a problem that’s right in front of them. Hence women might be more likely to come up with solutions to the issues that are more female-centric – and these areas could be harder for a male VC to relate to,” says Jon Bradford, managing director of startup accelerator Techstars.

Bradford backs up his view with years of experience in the field. I’m not privy to enough pitches in the VC deal room to say whether most businesses led by women are gender specific. However, I feel confident this is changing – for every woman I know starting a niche digital business aimed at the female market, I know another whose venture is far wider in business scope.

A dearth of female VCs?

There just aren’t many women in the driving seat at VC firms. In September 2014, a report from Babson College in the US found that just 6% of global VC partners were women.

Weerada Sucharitkul, co-founder of FilmDoo, confides that she’s been on the receiving end of dismissive attitudes from some male VCs. Apparently, a great number of her female peers agree: “Male VCs may subconsciously view pitches from men as being more persuasive, logical or fact based, despite there being no evidence that this is the case,” she says. “I wouldn’t expect this to change until more VC funds have female partners involved at senior levels of management – they’re more likely to embrace female entrepreneurs and recognise the value they bring to the table.”

Are VCs stuck on historical pattern recognition?

“The early-stage and tech investment community is small and it’s fair to say that people like working with those they’ve had success with in the past,” says Silicon Valley Bank (SVB) vice president Bindi Karia. “This could translate into a lower number of female-led businesses receiving investments in what is a historically a male-dominated industry, but I see this trend changing.”

At SVB, they’re looking at the role that unconscious bias plays and are endorsing projects like Boardlist’s #ChoosePossibility to encourage leadership diversity in tech. A worthy move.

Nick Beim, partner at New York-based VC firm Venrock, puts it very eloquently in this article for Wired: “Most venture capitalists haven’t internalised the success of female entrepreneurs to a sufficient degree to have it influence their intuitive pattern recognition.” He makes a clear link between basic human psychology and VC funding favouring men.

Ultimately, I believe the gender bias in VC funding could see a shift if three things change: one, if more women brave the dragon’s den, then more VCs will see examples of successful female entrepreneurs; two, male VCs could be more aware of their biases; and three, more female partners and role models at the VC firms please.

What might we expect should the above actually materialise? To see the needle not just move but swivel on the number of digital startups led by women. For the collective, tangible impact from females on the tech industry to surge, and a cohort of accessible mentors to spring from this, which in turn would rally the next gen of young women to take a shot at it.

Above all else, it would level out the playing field to make the funding game truly healthy and fair.

Shivvy Jervis is the creator and presenter of Telefonica’s Digital Futures series. Follow her on Twitter.

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