Early-stage businesses are often lauded as leading the way in levelling the playing field when it comes to gender representation, but truth is, we still have a long way to go.
SyndicateRoom published a report of the Top 100 fastest-growing businesses in the UK today using data from independent research agency Beauhurst. The ranking was based on valuation increase between 2014 and 2017, with the wider report looking at data around employment, geography and gender balance. And that last point is where the problem lies.
Companies headed by women
This ratio extends well beyond our own report: only 7 per cent of FTSE 100 companies are headed by a woman (and even less for the FTSE 250), a statistic perhaps best put into perspective by the title of this Fortune article: Men Named ‘David’ Outnumbered All of Britain’s Top Women CEOs Last Year.
There are two main ways to read this. The first and very incorrect interpretation would be to say that clearly this demonstrates that women simply aren’t as savvy as men when it comes to business acumen (no pun intended). The second and far more sensible conclusion is that despite many outcries to the contrary, women continue to be at a major disadvantage when it comes to entrepreneurship.
It’s a man’s world
Barclays’ 2017 report Untapped Unicorns found that women-led businesses achieve far lower levels of funding, with male entrepreneurs 86 per cent more likely to be funded by a VC, and 56 per cent more likely to secure angel investment.
In the UK, men are about twice as likely as women to start a business. Global Entrepreneurship Monitor data shows that in 2016, there were 47 female entrepreneurs for every 100 male entrepreneurs in the UK – the lowest ratio since 2009. This figure also falls short of the European average of 59 female to 100 male entrepreneurs (52:100 in 2009).
You might think ok, that’s around one female-led business for every two male-led – not an ideal ratio, but a lot healthier than the 7 per cent figure stated for high-growth UK businesses, or ‘scale-ups’. The drop-off happens because the businesses founded by these women aren’t growing as quickly as those of their male counterparts. Why is that?
Is it that the female founders’ ideas aren’t as innovative as the men’s? Do they have trouble organising their venture in such a way as to inspire investment? Perhaps they just don’t want it as much?
Or maybe, it’s that the odds continue to be stacked against them.
The STEM of the issue
It’s undeniable that most successful startups these days have at least some toes in tech. Of our Top 100 cohort, 44 classify themselves as technology/IP-based businesses – more than the next four largest sectors combined.
This is a trend that’s being encouraged from up top. In November’s budget announcement, Chancellor Philip Hammond confirmed that AI, 5G and broadband is to receive a £500m investment boost, declaring: ‘A new tech business is funded every hour and I want that to be every half hour.’
While this ambition is fantastic news for technology companies, it is likely to exacerbate the chasm between tech and all other sectors – and by extension, the gender divide.
The number of women working in tech and other STEM fields – science, technology, engineering and maths – is, frankly, upsetting. In 2016, women made up just 21 per cent of the STEM workforce (down from the dizzy heights of 22 per cent the year previous). This is despite 13,000 more women working in core STEM occupations in 2016. The rate at which women are taking up these jobs simply does not compare to that of men.
What’s interesting is that this divide extends to founders. According to BNP Paribas’ Global Entrepreneurs Report 2016, male and female entrepreneurs gain the most funding in the same top three industries, with one exception: where men find success in technology, women tend to get more money in fashion.
It’s a societal pattern that starts early on. In the UK, few girls choose to study computer science at GCSE level (making up 20 per cent of the total number of students), at degree level (16 per cent) and beyond; the statistics for the US are similar. While many reckon that this is down to a universal biological difference in ability between the sexes, a conclusion outlined in the now infamous 2016 Google memo, this argument of nature versus nurture falls flat as soon as you glance at the corresponding statistics for other countries.
‘I walk into a classroom in India and it’s more than 50 per cent girls, the same in Malaysia,’ Professor Dame Wendy Hall, a director of the Web Science Institute at the University of Southampton, told the Guardian. ‘They are so passionate about coding, lots of women love coding. There just aren’t these gender differences there.’
The issue seems straightforward: it isn’t biology, it’s us.
Why would girls be eager to throw themselves into science and technology when those fields are still dominated by men? We all learn by example, which is precisely why the concepts of representation and, yes, quotas are so important. Naturally, the common argument is ‘we want people that are great, not just someone who ticks a box’. As if it’s impossible to have both.
The latest example is this month’s CES.
The 2018 Consumer Electronics Show, which kicks off the technology world’s annual calendar, met with a flurry of criticism online last month for assembling an all-male (and mostly white) keynote lineup for the second year running.
‘For a show marketed as “the world’s gathering place for all who thrive on the business of consumer technologies”, it sure seems like “for all” really means “for all men”,’ retorted GenderAvenger, an advocate equality in public dialogue. ‘You still have over five weeks to make this right, CES.’
The Consumer Technology Association, which is behind the conference, responded with a blog post saying that there were simply not enough female executives in existence: ‘As upsetting as it is, there is a limited pool when it comes to women in these positions. We feel your pain. It bothers us, too. The tech industry and every industry must do better.’
We really do need to do better. The association has since added several women to its keynote address lineup.
Understanding the market
It isn’t just the tech industry that’s underrepresenting. Last year, the overall percentage of women in boardrooms was around 22 per cent, while 16 per cent of companies had no female board members at all. But hey, don’t worry – almost 4 per cent of companies had equal numbers of female and male directors, or boasted female-led boards.
Given that women account for 85 per cent of all consumer purchases, this trend goes beyond being a moral issue: it makes no sense from a capitalist perspective. And we’re not just talking about groceries here. Women apparently account for purchases that include 91 per cent of new homes, 66 per cent PCs and 65 per cent of new cars.
The same research by Yankelovich Monitor and Greenfield Online found that 91 per cent of women feel advertisers don’t understand them. I wonder why.
Most angel investors are men
If you thought the figures around the number of women founding companies were bad, take a look at the number of women investing in them. Google, Facebook and the like may be criticised having workforces that are just 30–35 per cent female (with a far smaller ratio in technical roles), but in the world of investment those numbers would represent an astronomical improvement.
Today in the US only one in five angels is female; in the UK it’s one in seven.
In May of last year, Diversity VC, a non-profit partnership promoting diversity in venture capital, released its comprehensive Women in UK Venture Capital 2017 report, covering 160 active venture capital firms and over 1,500 employees. The study found that women make up 27% of the venture capital workforce in the UK. Not a great figure, right?
It gets worse.
Of the people who make the actual investment decisions, women represent just 13 per cent.
‘It should be noted that by excluding the two biggest firms in our dataset (Bridges Ventures and IP Group), the representation of decision-makers at a senior level drops to 11%,’ the report continues, pointedly.
‘It’s sobering to see that women are so underrepresented in our industry. Only 13 per cent of decision-makers (partners or equivalent) in UK venture capital are women, and a staggering 48 per cent of investment teams have no women at all.’
This is incredibly important because gender bias does matter.
A study conducted at Harvard Kennedy School found that investors prefer pitches presented by male entrepreneurs to those by female entrepreneurs, even when the content of the pitch was exactly the same. Moreover, investors in this study rated the male entrepreneurs as being more persuasive, fact based and logical. Again, the content of the pitches was exactly the same.
According to the FT, one of the most common challenges female founders face is access to capital. ‘I have been struck and disappointed by the data showing that backing female founders is so low,’ said Debbie Wosskow, Founder of venture-backed LoveHomeSwap and AllBright, an angel investment network focused on female-founded businesses. ‘Only 10 per cent of capital raised backs a business with a woman in the senior leadership team. Only 2.7 per cent globally backs a business with a female CEO.’
These statistics seem particularly unfair given there is research to show female-led startups tend to outperform those led by men. BNP Paribas’ Global Entrepreneurs Report 2016 surveyed 2,600 high- and ultra-high-net-worth entrepreneurs from 18 countries. The results demonstrated that not only were the female entrepreneurs in the study more ambitious than their male counterparts, anticipating a greater increase in profits in coming years, but they were also more successful.
Companies helmed by female entrepreneurs had 13 per cent higher revenues than those run by men, and finished 9 per cent above the average for all entrepreneurs surveyed.
Yet despite this, female-led startups continue to be underfunded.
‘It’s a well-documented fact that female founders receive less venture capital funding than their male counterparts,’ confirms a recent Fortune article, optimistically titled Venture Capital’s Funding Gender Gap Is Actually Getting Worse, before pointing out that in 2016, VCs invested $58.2bn in companies with all-male founders and just $1.46bn in female-led ones. ‘What is perhaps more surprising is that things haven’t improved – and have actually worsened – over the past year.’
Such a severe lack of funding means female founders are forced to concentrate on counting pennies instead of growing their business.
Lu Li is the Founder of Blooming Founders, a business social network for early-stage female entrepreneurs, and female-focused members club Blooms London.
‘80 per cent [of female founders] are bootstrapping the business from their own savings, which makes them more cautious about how to invest the money. The mantra is making ends meet, not growth,’ Lu told SyndicateRoom.
‘The general lack of funding is obviously a big road block, but typically female-founded companies are under-resourced to begin with, so the likelihood to become “investment ready” is smaller. Women have to look for ways to get their businesses off the ground that doesn’t break the bank.’
Some light from on high
That’s the bad news. But here’s a ray of progress – while the diversity stats at tech companies are proving remarkably hard to change, the number of women angels, while still low, actually represents impressive gains. In an industry with a stubborn diversity problem, angel investing is heralding some progress.
‘Three years ago when we were founded, 13 per cent of angel investors nationally were women. There was a huge divide,’ reports Miriam Bekkouche, Program Director of New York-based, all-female angel network 37 Angels. Last year the number was around 20–22 per cent, depending on which report you read.
How about in Britain? ‘Addidi Angels was the first female angel club, originally founded in 2009. At that time, less than 5 per cent of angel investors were women and the club was set up with the specific objective of increasing that to 15 per cent,’ explains Anna Sofat, Founder of Addidi, a female-focused wealth management firm that started one of the UK’s original female angel networks. She’s largely achieved her target – according to the UK Business Angels Association, women now make up 14.1 per cent of British angels.
Breaking the chain
That’s a lot of ugly information to take in, so here’s a summary. Female entrepreneurs – particularly in tech – are in the minority, and they’re getting a tiny fraction of investor and VC funding, whether these investors are male or female – and they are overwhelmingly male. These largely male entrepreneurs go on to create products, the vast majority of which are bought by women, who nearly all feel that the people marketing these products don’t understand them. Which may be because the decisions in most boardrooms are made by men.
Imagine what the statistics for minorities look like.
What is clear is that the problem of inequality is fundamentally circular. The perception of who women are, what they’re good at and what they should do is so ingrained in our society that it feeds off itself, making any sort of quick fix impossible.
It’s easy to think that because a problem is being talked about, it’s being addressed. But we need to be doing more. There is no single magical part that can be changed in order for us to have gender parity; we must strive to improve everything all at once for equality to become self-sustaining.
Our Top 100 report, the one with seven female-led companies, also features ten entrepreneur interviews. All of these are with men. We’d sent out several nudges to the whole list asking who would be interested in being featured, and ten men are what we ended up with. The interviews are interesting and insightful, drawing on personal experience and dispensing advice that is invaluable to founders and investors alike. What they aren’t is representative. We should have tried harder.