Fundraising for Women Entrepreneurs During the COVID-19 Crisis
Fundraising for female founders has been challenging historically. This has been a much debated yet persistent global trend: in the UK (2017), 1% of venture capital went to all female founders, and in the US (2018), 2.2% of venture capital went to all women led companies. In the current COVID-19 crisis, fundraising for female founders is under the spotlight again. As founders feel the hard effects of slowing venture funding, there are concerns that the economic fallout of COVID-19 could prove harder for women entrepreneurs. With a mainstream health crisis raging globally, how can we ensure that fundraising for women entrepreneurs does not fall by the wayside?
A survey done by 500 startups recently, states that 40% of female founders anticipate that they will need more time to meet their fundraising goals. With limited fundraising in the past, several women led startups do not reach the fundraising threshold for receiving grants under government programs launched to combat the effects of the pandemic- such as the Future Fund in the UK which is for companies that have raised over £250K in equity funding already- leading to the concern that these women led companies may go out of business. This is coupled with genuine apprehension as to how much further the minuscule venture allocations to women entrepreneurs can fall as venture firms try to shore up their existing portfolios and are ‘selective’ with new investments going forward.
The origins of this predicament lie not in COVID-19 but in the historically low venture allocations to women entrepreneurs. The low numbers are surprising not for the usual reasons of diversity but for the lack of data that would support these allocations. Research carried out by McKinsey in 2018 showed that companies with the greatest gender diversity on their executive teams are 21% more likely to outperform peers on profitability and 27% more likely to create superior value. Women do not lack ability — yet a funding chasm for female founders remains. A 2019 research by BCG showed that if women and men participated equally as entrepreneurs, global GDP could rise by 3% to 6% boosting the global economy by up to $5T. Yet the funding gap remains.
One often stated reason is gender bias in the VC pitching process, with supporting research presented recently in the Harvard Business Review. Another is the lack of female representation in investment teams where, as per a UK study only 13% of senior people on investment teams are women, and almost half (48%) of investment teams have no women at all. According to a TechCrunch study, among the top 100 US venture capital firms, the number of women partners was 8% in 2017. In India, only three of the top 20 venture capital firms, India Quotient, Lightspeed India and Kalaari Capital have one woman partner, according to Mint research. The rest do not have a single woman partner other than women focused funds like Saha Fund. Yet another reason is the confidence gender gap where women tend to undervalue themselves as compared to men in a competitive situation. Whatever the reason the funding gap remains a depressing reality. Despite the challenges, more women are turning to entrepreneurship to follow their passion and are reaching new milestones.
In 2019, there were more female-founded unicorns than ever before, and Crunchbase reported that 20% of global startups raising their first round of funding had a female founder on the team. The striking statistic remains that teams with all female founders still only received 2.8% of all capital invested in the U.S. startup ecosystem in 2019, and there is emerging evidence that the economic impact of COVID-19 is bound to disproportionately affect women. During these unprecedented times with challenges on multiple fronts, unless managed actively, our implicit and explicit biases may derail the progress in fundraising for women entrepreneurs.
