Tackling the gender bias around funding

Sophia Matveeva, CEO and co-founder of Enty, tackles the thorny subject of funding bias against women, discussing her own experiences when setting up her business.

A recent report commissioned by the Chancellor Philip Hammond and undertaken by the British Business Bank in partnership with Diversity VC and the BVCA, revealed findings that will have come as no surprise to women running tech startups – funding for tech startups is very inequitable when it comes to gender.

One of the stand-out statistics was that for every £1 of venture capital (VC) investment in the UK, all-female founder teams get less than 1p, all-male founder teams get 89p, and mixed-gender teams 10p. And progress towards a more balanced picture is worryingly slow. Although VC investment for female founders is growing, at the current rate, it will take more than 25 years for all-female teams to reach even 10% of all deals.

Some of the reasons for this imbalance in funding are fairly easy to understand but are proving far harder to address. The investment community is still predominantly white and male with a background in banking, with women representing only 13% of key investment decision-making roles in the UK venture capital labour force. In fact, 66% of investment teams have no female decision makers at all (ref – Study of 160 active VC firms carried out by Diversity VC in May 2017).

So it is the very profile of those gate keepers of the capital that creates a bias in the products that get funded – which is evidenced by the glut of well-funded male fintech founders. Tech products created by female founders and aimed purely at female consumers are just not as instinctively easy for male investors to relate to, so are less likely to secure the investment they need to get off the ground.

I have faced exactly this issue while raising funding for the company I run, Enty – a fashion tech platform where women discuss what to wear and buy with stylists and in a community in a safe, ‘troll-free’ environment. I knew that to set up a platform for women, we had to put the female experience at the heart of everything we do – our design, our business strategy and our marketing.

We wanted to build a platform where women would feel comfortable posting photos of themselves in any context, so they could get professional stylist advice when they most need it. We worked off the insight that women often have a very different experience online to men – they are much more likely to be bullied or receive unwanted attention so the protected aspect of the service and community is central to the proposition; but it is this aspect that has not always been fully understood by male investors.

And of course, it’s far harder to understand a pressure point if you have not personally experienced it. Over and over again, I heard potential investors say that our company may or may not be a success, but because they could not understand the use case they would not invest.

As a result, and without intending to, Enty became a female-funded company, because women could intuitively understand the need for feedback and reassurance about their outfit choices and could see our global potential.

This pattern is repeated over and over again for female founders. It naturally follows that if an investor would not use the product, and they don’t understand the use case for that product, then you are far less likely to secure their interest. And even when you do get them to understand it, they often can’t see the scale of its appeal, and therefore underestimate the growth potential of your business.

This study from the Boston Consulting Group shows that companies with at least one female founder raised around half of the funding raised by all male teams, but made 10% more revenue. The group reports that “many of the female interviewees told us that their offerings—in categories such as childcare or beauty—had been created on the basis of personal experience and that they had struggled to get male investors to understand the need or see the potential value of their ideas.

The investment bias continues despite the fact that on average, there is lots of evidence that female-founded companies make higher returns than male-funded companies (First Round Capital’s 10 Year portfolio review reported that companies with at least one female founder performed a staggering 63% better than their investments with all-male founding teams. Therefore, it should follow that if investors want to secure higher returns from their investments, investing in female founders is a good bet.

Certainly, since being a female founder is often harder due to the lack of understanding for the product and unconscious biases, the companies that actually do get funded have incredibly strong founders with a very clear vision and strategy and are well-placed to outperform the market.

So, how do we go about creating a win-win, where female founders secure a larger share of investment capital, and investors benefit from increased returns?

A critical first step is VC funds employing and promoting a more diverse workforce, so there are more female decision-makers and those with experience and understanding of female consumer markets. Why not hire people from marketing backgrounds who understand the power of the female consumer? It makes no more sense for former bankers to become VCs than for brand managers from Unilever and P&G or the big media companies.

Women often create businesses to answer their own consumer wants and challenges, and with women responsible for 80% of consumer spend, this is a huge untapped opportunity.

The bottom line is until we have more diversity amongst investors, we will see the same types of founders and companies getting funded. This means huge competition and overfunding in one area and at the same time less funding but therefore more market opportunities for female consumer products.

To get better returns, investors need to have diversity in their teams and in their portfolios. There is money to be made in women supporting women!

What do you think? Let UKTN and @SophiaMatveeva know – and let us know about your own experiences in funding