No place for women entrepreneurs? Why investors have a problem with women-led businesses

December 24, 2019 11:59 AM

As per a recent research report, less than 3 per cent of global venture capital was invested in women-led teams in 2017. The figure is slightly better for emerging markets.

Even when female entrepreneurs get funded initially, their chances of finding long term success seem low.
  • By Nupur Garg

A few weeks back, I was chatting with a successful female entrepreneur and we ended up discussing her journey. Somewhere along the way, the topic of fundraising came up, along with her list of ‘ten investors that female entrepreneurs should never approach’. We didn’t have enough time to dig deeper but the concept left me uncomfortable and curious to explore it further. After all, isn’t investing about finding a good business to back and wouldn’t a good idea get funded regardless of the gender of the entrepreneur?

It seems not. Speaking to various female entrepreneurs reveals that gender bias is real and exists. From being asked for a male co-founder and being ignored in favour of a male team member, to being asked questions on childbearing plans, and sometimes, facing derogatory sexist remarks, female entrepreneurs may have to go through the whole gamut of experiences that everyone thought were left behind two centuries ago. As per a recent research report, less than 3 per cent of global venture capital was invested in women-led teams in 2017. The figure is slightly better for emerging markets, with 7 per cent of the private equity and venture capital funding going to female-led businesses.

So what is going on here? For starters, we don’t have many female entrepreneurs entering the ecosystem. The likelihood of an investor backing a female-led business is correlated to the presence of women and gender balance in the investor’s team. Now the private equity and venture capital industry suffer from dismally low levels of gender diversity at both global and regional levels. The same research, which by the way has some fantastic data, reveals that only 11 per cent of senior investment professionals in these investment firms are women and only 15 per cent of senior investment teams have gender balance, which means that they have one-third or more female members.

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Another interesting data point highlights that female-led businesses are less successful in raising subsequent funding and where they do succeed, it is likely that the female lead has been replaced by a man. So even when female entrepreneurs get funded initially, their chances of finding long term success seem low. This seems to reflect in the National Sample Survey that reports 14 per cent of businesses in India are run by female entrepreneurs – of these, more than 70 per cent report an annual turnover of up to Rs 10 lacs in a year and employ five people or less. The small number of successful female entrepreneurs sets off a vicious cycle with few role models that could inspire more.

So what could we do? One idea that finds favour with some people is women-only funds and funds that will invest only in female-led businesses. The lack of enough candidates makes it a slightly challenging commercial proposition, and also, arguably, the benefits of diversity and pitfalls of groupthink work both ways. Data has not yet established that women-only teams or portfolios outperform the rest. Another approach, and one that is relatively more commonly seen, is special initiatives for women entrepreneurs including access to finance, mentorship and capacity building. Each one of these is required and neither will be sufficient by itself but programmes to bring all these together under one umbrella are far and few. But most importantly, all of these initiatives will fail unless the whole ecosystem undergoes a transformation.

Societal and cultural factors could take generations to completely resolve, but the entrepreneurial and investing ecosystem is within the influence of each of its constituents. Let each of the investors make a commitment to addressing the lack of gender diversity within their teams and within their portfolios. It takes only the exceptionally courageous, or as a wise friend term it, the exceptionally dense, to push through the odds. Let’s applaud the brave, celebrate the winners and do our best to attract more to the ranks.

(Nupur Garg is the Founder at WinPE: Women in Private Equity and an independent director at SIDBI, IVCA LP Council member. Views expressed are the author’s own.)

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