The gender funding gap is an ever-present issue in the global workforce as female entrepreneurs continue to receive less funding than their male counterparts. Although the number of female-founded businesses might have risen in the past few years, the low rate of female-owned businesses still remains a worldwide phenomenon. Currently, only Italy and the United States record the highest share of start up’s with at least one female founder (17% and 16% respectively).
A 2019 venture capital report has shown that women remain globally underrepresented in venture capital. The report covered by CrunchBase shows that female founders received only 3% of invested capital while companies with male founders got 89% of the invested capital. With the remaining 8% going to companies with both male and female co-founders.
A report by the Organization for Economic Co-operation and Development also stated that women-founded companies are less likely to receive funding than male founded companies, and even when they successfully receive funding, they tend to receive less capital from investors.
According to Pitchbook, less than 10% of female-founded start-ups are allocated funding by venture capitalists in the European Union. It is evident that women still experience a gender-specific disadvantage when they seek to launch and grow their businesses. As of 2017, only 1.6% of venture capital in the Netherlands was invested in female founders and only 6.8% in mixed teams. To address this cause in the Netherlands, 25 progressive Dutch venture capital investors and TechLeap.NL are entering into a joint initiative, #FundRight, that will hopefully lead to equal funding opportunities and a more diverse start-up ecosystem.
Like so many things in life, solving the gender funding gap isn’t going to be easy. And some of the contributing factors to this present challenge continues to be; the visibility of women startups to investors; investors considering female-founded businesses from a “prevention focus” (the potential for loss or failure); the unconscious bias of assuming a male founded company has greater potential for success.
To have a real chance at equality, we have to acknowledge these biases. Awareness and understanding must occur before we proceed to address and actively work on overcoming this inequality. Closing the gender funding gap cannot remain an aspirational ideal. Instead, it must become a reality within our lifetimes, companies, and economies.
For better outcomes, we need to act together for impact likewise incorporating the best learnings from around the world. Hence, identifying the underlying mechanisms is crucial for dealing with gender bias in closing the funding gap.
Create awareness for both entrepreneurs and investors
Advocate for awareness. In some instances, the funding gap originates from the gender-biased questions that investors pose to entrepreneurs. A recent study showed that investors tend to ask male founders “promotion-focused questions” (67%) and female founders “prevention-focused questions” (66%) and that both genders tend to respond in accordance with the questions asked. Male founders were angled to speak positively about the potential for success where female founders were positioned to focus on the negative ‘what-ifs’. The study found that founders who were asked promotion-focused questions raise more funds.
Promotion focused questions are related to advancements, ideals, and achievements such as “How do you plan to monetize your start-up?” While prevention-focused are related to responsibility, security and vigilance such as “How long will it take your business to break even?”
By creating awareness investors can be more balanced in how they address and assess all founders about their business and entrepreneurs can position themselves to promote their startup in the face of negative framing.
Studies suggest that women-founded companies gain more funding by responding to prevention-focused questions with promotion-focused answers. For instance, a prevention-focused question such as “How long will it take your business to break even?” can be answered with a promotion-focused answer such as “Our goal is to expand our margins through this forecast period. The sales forecast will… “
The current situation of the gender funding gap means economies are missing out on opportunities for innovation and development, and investors are missing out on capital growth.
We must all continue to strive for equal opportunities in gender funding parity.
Ebere Akadiri is an accomplished entrepreneur and an advocate for women in leadership. Her passion to inspire others to achieve their goals drove her to found Rise and Lead Women along with her co-founder, Poonam Barua. Their mission is to inspire women to take the lead in closing the gender gap in workplaces and in business.