It’s no secret that female founders are massively underrepresented when it comes to attracting investment from venture capital, a reality which was recently highlighted by the Rose review of female entrepreneurship.
Investors largely agree that the founding team of a business is the most powerful factor influencing their decision to invest – sometimes more so than the business plan itself. This means venture capitalists look for a strong team with a diverse and complementary skill-set, who can make a success of challenges the business may face. For these reasons, investors not only accept, but champion, gender diversity. But clearly female founders are still being overlooked for investment.
Given the historic imbalance, it might be less surprising to see this evidenced in later-stage businesses, which have taken years to be ready for larger investment rounds. The frustration is that it also holds true at seed stage and Series A.
Theories that female founders are not ambitious enough, too shy to ask for larger amounts or that they don’t build big companies because they are risk-averse are simply outdated and inaccurate. More realistically, it is likely connected to the fact that only about 8% of investors are female.
Unconscious bias means one’s background, personal experiences and social stereotypes can have an impact on a person’s decisions and actions without them realising it. In the context of an investor pitch, unconscious bias means that male investors are likely to be drawn to entrepreneurs who they can identify with on a personal level and who are like them – put simply, other men.
Many venture capitalists are actively trying to address the imbalance. Forward Partners offers ‘female founder office hours’ for female-founded or co-founded companies to meet for advice and potential investment. Fuel Ventures is trialling gender-blind decks, where the pitch decks have the team and gender removed, leaving only their background before the deck is reviewed. Some are even investing solely in female founders.
But the biggest change will come when we see women sitting on both sides of the table. We need diversity among investors to encourage diversity in business. But the world of investing still has a “boys’ club” reputation, which can be alienating to women who want to get involved. Giving women the confidence to invest their money through mentoring schemes and networking means we will diversify the audience female entrepreneurs will face.
The Rose review paints a stark reality but the good news is that things are changing and investors are actively seeking to address the imbalance. For example, Smith & Williamson’s Tabitha Luxmoore-Styles works with Enter The Arena to provide free advice for female entrepreneurs at an early stage of financing. There are increasing numbers of events and services targeted specifically at improving the situation for women.
Devika Wood, Founder and CEO of Vida, is featured in Smith & Williamson’s Hall of Fame as an entrepreneur and success story. She described raising capital as a challenge because “finance is a very male-oriented industry and it is easy to be manipulated”.
What she describes is not an environment that supports female founders and this needs to be addressed with urgency. When we begin to see increased gender diversity among venture capitalists, this will help to create a permanent environment where female entrepreneurs receive more support and, ultimately, more investment. In the years to come, their business successes will speak for themselves but we need to get the ball rolling. Only then can we move away from gender comparisons and focus on the merits of diversity in all its forms as a predictor of genuine business success.
Nick Travis is a Partner at Smith & Williamson Investment Management LLP and specialises in building bespoke investment portfolios for entrepreneurs. Tabitha Luxmoore-Styles is a business development executive in the entrepreneurial services team at Smith & Williamson LLP.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.
Notes to editors
Smith & Williamson is an independently owned financial and professional services group. The firm is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices, entrepreneurs and mid-to-large corporates. The group’s c1,700 people operate from a network of twelve offices: London, Belfast, Birmingham, Bristol, Cheltenham, Dublin (City and Sandyford), Glasgow, Guildford, Jersey, Salisbury and Southampton.