In the spring issue of the Great British Entrepreneurs Magazine, Jonathan Davies investigated why women receive less funding than men and what can be done to close the gap.
A century on from women being given the right to vote in the UK, in 2018, the ‘Year of the Woman’, women are still fighting for equality in so many areas of life.
They are still earning less than men, just a third of MPs are women, there are fewer women leading FTSE 100 boards than men named John, and even in Hollywood – home to some of the strongest and highest-paid women in the world – the fight for equality has only really hit the mainstream headlines in the past 12 months.
Like Hollywood, entrepreneurship is home to some of the strongest and highest-paid women in the world, and it’s no different in the UK. And yet, they too are suffering inequality, particularly when it comes to raising finance.
There is a very real gender funding gap. Businesses led by women raise far less investment than their male counterparts. Men are 86% more likely to receive venture capital (VC) funding and 56% more likely to gain funding through angel investment. A fifth of small and medium-sized enterprises (SMEs) in Great Britain are run by women, and yet they are not receiving a fifth of investment. In fact, a report by The Entrepreneurs Network found that just 9% of the £4 billion invested in the UK in 2016 went to businesses with at least one female founder.
These figures come in stark contrast to those that look at the performance and successes of female founders. Thirty-four per cent of men have seen their business collapse, compared with just 23% of women. And female entrepreneurs generate 20% more revenue with 50% less investment. Women are the safer and more lucrative bet for investors, it seems. So why isn’t that translating into reality?
The unconscious bias and confidence
One of the biggest issues, according to Julia Elliott Brown, is a crippling lack of self-confidence among female founders, brought on by an unconscious gender bias in the investment industry, on both the entrepreneur and investor side of the fence.
Julia is the founder of Enter the Arena, an equity fundraising consultancy which works exclusively with women to help them on their own journeys to successful equity fundraising and crowdfunding.
She admits she had no idea how to navigate the fundraising ecosystem when she sought investment for her business Upper Street in 2009. But it was the domination of men in the industry that she found more frustrating.
“At least 95% of the people I spoke to were men, and I found that most of them didn’t really get what my business did,” Julia recalls. “Upper Street was a female-focused business. It was a really tough pitch to go to those guys, feeling really patronised everywhere I turned. You feel very dismissed by these people. You get asked things like ‘What does your husband do for a living?’ and ‘How are you going to manage your business around your children?’ A man would never get asked those questions.”
Investors like to find their next business through their networks, Julia explained, which can make it extremely difficult for many women.
“If you’re not part of their network, or a female entrepreneur running a family as well as the business and you just can’t go to these evening networking events, you get shut out.”
“The unconscious gender bias is definitely an issue,” she claims. “Anybody would be foolish to think that they don’t make decisions with an unconscious bias – women and men.
“Anybody in the financial industry will say ‘we just don’t get women applying’. A massive issue is that we’re not getting enough women coming forward and stepping up to fund their businesses, scale them or invest in them.”
Why aren’t more women coming forward? Julia says women are put off for two reasons. Firstly, they are conditioned to be more risk-averse and modest with their ambitions. Secondly, they see the world of investment as being run by men, and from the outside, Julia says, that can look really intimidating for women, whether they’re looking to raise finance or invest.
Julia explains: “Where women feel their values are going to be compromised by taking on old, pale, stale, male investors in suits, it stops them going there and doing it. I think women build their businesses like having children, they don’t want to let them go and find it very difficult to think of this idea of bringing in other people who are going to take this business out of their hands – that’s how it is perceived.”
Many of the thoughts put forward by Julia are shared by Bill Morrow, founder and chairman of Europe’s largest angel investment network, Angel’s Den. The investment network raises £2-3 million a year for female entrepreneurs – around 10% of its total amount, roughly in line with The Entrepreneurs Network figure for 2016. That is despite women being twice as likely to get funding than men through Angel’s Den, according to Bill. “I do know that (the figure is not higher) because not enough female entrepreneurs come forward,” he explains.
“The female entrepreneur is lacking in self- confidence, and that’s pretty self-evident. There’s something else holding them back,” Bill starts. “Guys will take risks, guys are more comfortable in that environment. If you look at the stats on gambling, most of them a male. You go to a casino and most of them are male. Why is that? Because men are more comfortable with risk.” Raising investment is a risky game for entrepreneurs, that’s certain. Does this inherent aversion to risk highlighted by Julia and Bill translate to the investment side?
Where are the (female) investors?
While Bill claims female entrepreneurs are twice as likely to get funding than men through Angel’s Den, there is a very real problem. Just 2% of Angel’s Den’s investors are female. And that falls below the industry figure 14-15%. It’s a statistic that sparks the question, ‘why’?
Bill explains that every single deal brokered by Angel’s Den in its first four years was done between white men. No gender diversity, no racial diversity, just white men. But when the number of female millionaires overtook the number of male millionaires, they turned their focus to trying to encourage women to invest through Angel’s Den.
“We set up what became Europe’s largest female- only angel database, we tried six different types of pitching – that didn’t work. We tried only introducing female entrepreneurs to female investors – that didn’t work. We tried focusing on particular sectors – that didn’t work. We tried allowing them to take the lead, we tried patronising them – that didn’t work. We got to a point where we asked ‘what do we have to do to actually get you to invest?’” Bill explains with noticeable frustration.
Angel’s Den launched a training programme for people with high capital but no investment experience or skills. The majority of those who turned up and completed the courses were female. And they started to invest.
“From that, I surmised that it was something to do with being in full possession of the facts,” Bill says. While stressing generalisation, he claims that ‘do you drink lager or beer?’ and ‘do you watch football or rugby?’ are about as pertinent as the questions will get from male angels. Female investors, what few of them there are, will be thorough, leaving the pitches with lever-arch files full of information to go through three weeks of due diligence.
That results in a natural, understandable, response from the entrepreneur, Bill says. “When a male entrepreneur is pitching to male and female investors, if the female investor wants three weeks of due diligence compared with a man who is willing to part with his cash easier or quicker, he’s going to choose the male investor.”
Julia again stresses that it is an area dominated by men, one that is not welcoming for female investors. “Sorry to be blunt about it, but it’s intimidating,” she says. “Pitching events are really intimidating for female entrepreneurs and investors. It’s difficult for female angel investors to be in an audience during a pitch competition where there are mostly men, with everyone trying to grill the entrepreneur to see who can ask the most difficult questions – there’s a bit of an ego battle to combat.”