By Heather Henyon, Founding Partner, Mindshift Capital
When Dr Sandhya Sriram and Dr Ka Yi Ling, both stem cell scientists, founded Singapore-based Shiok Meats, they left their full-time posts at Singapore’s Agency for Science, Technology and Research to become entrepreneurs and female tech leaders. Even more importantly, their mission was to create a shrimp substitute that would address the mainstream, unsustainable shrimp cultivation. Backed by investors such as Mindshift Capital, Shiok Meats is aiming to disrupt the global shrimp industry plagued by slave labour.
Stories such as these, wherefemale-led start-ups are receiving the capital they need to grow and expand, are the stories of success. However, the gender gap within venture capital (VC) funding remains a well-documented problem. In the US, only 2% of VC-backed start-ups are led by all-female founding teams, and only 15% of VC goes to founding teams with at least one female founder/cofounder – meaning that the majority (83%) of funding has been going to all-male founding teams. We know that the numbers are even worse globally – in the Middle East, 95.5% of funding went to all-male founding teams in December 2021 according to Wamda.
With plenty of female-led start-ups ready for investment and research showing women-led companies outperforming those with only men at the helm by producing superior returns, the argument for applying a gender lens to investment is stronger than ever.
So why isn’t the money getting through to the women who need it?
It’s not about “the pipeline”
The gender gap in VC funding cannot be attributed to a lack of female business leaders as one-third of businesses are owned by women, including Europe and North America. Based on a decade of experience investing in emerging markets, our estimates are that the numbers of women entrepreneurs in countries like the United Arab Emirates and Jordan could be much higher than even Silicon Valley – potentially 40%.
One of the key underlying issues is the existing bias persisting amongst largely male investors who often prefer to fund all-male teams — a trend which Dana Kanze, Professor at London Business School, cited as “homophily,” or the tendency for investors to fund those from similar backgrounds. In the words of European Women in VC founder Kinga Stanislawska, largely male financers prefer investing “in founders that are most like them.”
Where women are making an impact
This biased attitude ignores the important contributions women are making to businesses. A wealth of research has confirmed gender-diverse firms are more successful, generating wider profit margins than those run predominately by men. Despite funding disparities, research from the Boston Consulting Group (BCG) shows female-founded start-ups generate 10% more in cumulative revenue than male-ledfirms although raising less capital. Women-led businesses are also displaying resilience following pandemic-related setbacks in 2020, with Inc. Magazine reporting numerous high-profile exits in the US reaching a record $59 billion in value – eclipsing the US market average.
Women are also blazing a trail in several sub-sectors. Lynda Weinman recently sold her eponymously titled Lynda platform, now an edtech unicorn, to LinkedIn for $1.5 billion. Meanwhile, Priya Lakhani’s CENTURY Tech secured $6.5 million in funding to help improve children’s education with AI.
Advances in femtech are primarily female-led, with women’s health being championed through a variety of technologies ranging from tailored digital healthcare to AI-based support formenopausal women – market segments that have been neglected despite the large demand..
In other sectors where the gap remains, we are seeing progress, although more is needed. For example, in fintech female-led start ups only made up 17% of total VC investments in 2020, but this is up 6% from 2019. Notably, all 3 youth payment platforms in the UAE have female founders, two of them with women CEOs, whereas the market leaders in the US and UK do not.
The leadership abilities and achievements of female entrepreneurs hold significant implications for the global economy, with additional research from BCG showing female participation within business could boost global GDP by up to $5 trillion – but only when assisted by VCs, in addition to non-profit organisations and corporations.
We need more female investors
The gender gap in VC funding can only be bridged by first addressing the gender gap within VC funds themselves. Women are under-represented in senior VCs, with recent research suggesting that 85% of Central and Eastern European VC investment positions being occupied by men, not to mention 93% of partner roles. Women are also under-represented amongst US investors, making up only 21% of those representing investment committee members.
Addressing this imbalance in VCs is essential as female investors are more likely to fund firms with female-only or gender-diverse leadership. For example, the European Commission study found VC firms with female partners were over twice as likely to fund organisations with female executives, and over three times more likely to invest in organisations with female CEOs.
The shift in gender balance within VCs will not only lead to more money being invested in female-led enterprises but also improve the profitability of VC portfolios. Research suggests that VC firms increasing the number of female partners by 10% saw a 1.5% increase in annual fund returns and a 9.7% increase in profitable exits.
Gender lens investing has become a growing trend over the last five years, with allocation of capital to women-led businesses the key priority for a number of VC and equity funds across the globe. More needs to be done though to acknowledge the transformational role of women in business. By investing in extraordinary female leaders, we will not only accelerate financial performance but also support new, innovative, inclusive and sustainable business practices.