On a global basis, female-founded startups secure just 3 per cent of all venture capital funding. If you’re a female founder that wants to raise venture capital in Australia, that figure increases to 10 per cent. An improvement, but one that still leaves a significant imbalance, particularly as the number of female-led startups is growing.
According to a recent report, total funding events involving startups with at least one female founder doubled from 2020 to 2021. When you look at that figure closely, however, the percentage of deals made with companies involving female founders only increased from 18 per cent to 19 per cent in that same time period.
So, what has created this funding gap? Having developed and backed high-growth technology companies over the past 20 years, I’d like to share the most common reasons why founders aren’t making it past the pitch room. As an industry, we can overcome these equity challenges together:
1. Gender and social biases
There’s no point denying that social stereotypes and biases exist. Uncovering and discussing gender bias is a critical first step in the move toward gender equity.
When building my first company in the late nineties, www.giftvouchers.com, it was rare to meet an investor with female representation or leadership, and it was a shock to them when I showed up as a female business founder! I felt as if it wasn’t enough to be matching my male peers; I had to out-perform them for my company to even be considered. With perseverance, we raised the capital required to fund what was Australia’s first fintech company. We grew the business to service around 90 per cent of the ANZ retail gift card and gift voucher market, managing $700M in retail liability with the best brands including Coles Myer and Woolworths, and exiting to UK publicly-listed company, Retail Decisions (LSE:ReD).
Given that 90% of all VC partners are male, it makes sense that they are more inclined to lend to male-led businesses. The Australian VC sector can therefore make capital more accessible for female-led businesses by nurturing female talent within the investment sector itself, hiring females into their senior ranks and aiming to bring in a female portfolio manager, investor or analyst to every investor pitch meeting. This will not only show all employees that their opinions are valued but will drive a structural shift that will enable more female founders to access VC funds.
2. Lack of grand ambition
There’s a commonly cited Hewlett Packard internal report statistic about women applying for jobs and promotions only when they demonstrate 100 per cent of skills, with men applying if they meet 60 per cent. The same could be said about funding.
Recent research on the Australian VC sector found that only ten per cent of female founders feel highly confident that they will raise their next funding round, compared to 63 per cent of male founders. Lacking confidence, female founders sometimes fail to appreciate how large their potential market is and how much they can successfully capture. Belief and confidence when pitching is half the battle.
Funders evaluate people, product and the size of market that can be serviced profitably. More often than not, funding a great idea requires it to be more than just a good cause and the founder needs to have the ambition to go out and capture a large global market. Of course, all funders like to back something that has potential but also purpose. Combining potential, purpose, and demonstrable ambition is a winning formula.
3. Poor financial literacy
Investors expect a company’s leadership team to demonstrate financial competency and to understand cash flows. After all, you are asking them to part with a lot of money.
If you’re a female founder who doesn’t come from a background in finance, I would encourage you to either undergo formal training or to enlist a strong business partner who has this background and can speak the language of finance. Investors like founders who understand their business financials, particularly the unit economics of the business and the key performance indicators that an investor can measure to understand progress.
A successful female mentor can also be a tremendous help. If you don’t already have a mentor, attend startup and incubator events in your city, and reach out directly to someone who inspires you in business.
4. Building teams primarily based on relationships
It is tempting to draw on friends and families for help before looking externally for talent. Funders are wary of couples and other family dynamics in business though, as they understand that the stress of building a startup can place pressure on even the best of relationships.
Instead, hire those who know more than you in their specialised field and ideally, who have held similar positions successfully in the past. If close friends and family meet your talent gap and you choose to hire them, carefully discuss in advance the pressures this could create for the relationship (and what you will do if it doesn’t work out).
What’s next for female founders?
I intimately understand the challenges that women face when building a large-scale business. You must protect your own investment, while also communicating a strong voice and vision to be taken seriously. The key is to be smart with your time, energy and resources.
Today, OneVentures is the only female-founded major venture capital group in Australia and we have a policy to hire for a 50/50 gender split. We currently manage more than $600m in investment funds which shows that women can build great companies and finance firms. We shouldn’t ever be deterred from trying and I believe we can break through the #genderbiasgap.