Male founders win decisively in fierce battle for start-up funding
Natasha Pilbrow, co-founder of London-based LeSalon, a beauty app, leaves most of the work of pitching to potential investors to her male co-founder.
“It’s a little bit scary when I look around and the tech scene is dominated by young guys who eat, live and die by their start-up, and that is the benchmark and expectation that has been set,” she says. “People are aware that female-founded start-ups perform well but, on a day-to-day basis, there are not many women in the room.”
Rather than showing lack of courage in avoiding pitches, Ms Pilbrow is being smart. There is a good reason why she hands the job of raising the one-year-old start-up’s £500,000 target to Jean Michel Chalayer, LeSalon’s male co-founder.
Female founders are up against what could be called the Facebook-Mark Zuckerberg bias, because investors — both consciously and unconsciously — want to support something that has worked in the past. Men are 60 per cent more likely to get funding than women, other things being equal, according to a 2014 study published by MIT, Harvard and Wharton universities.
But, in terms of hard numbers, it should not be that way. “Venture capital deals that include women out perform their counterparts,” says San Francisco-based Sharon Vosmek, chief executive of Astia, a non-profit organisation that is dedicated to identifying, investing in and promoting successful women entrepreneurs.
Ms Vosmek has analysed data from Dow Jones’ VentureSource for the past 15 years and says that 64 per cent of successful venture capital-backed exits had at least one female executive as of 2014.
So why is there such a large gap in the funding of women in start-ups? First, there are fewer female founders looking for capital, which venture capitalists refer to as the “pipeline” issue. But there are other reasons, including the way women ask for the capital and how they put their pitches together.
“Women are less comfortable asking for money and doing the promotion that is required to successfully raise venture capital funding,” says Brynne Herbert, founder and chief executive of Move Guides, a UK-based start-up that helps companies to relocate employees globally.
“It is critical for female founders to develop their presentations and [have access to] mentors and seminars that develop these skills,” she says.
Ms Herbert adds that fundraising often requires a personal introduction and having a wide network of both male and female supporters can help founders to find funding.
“It sounds obvious but it’s important to build a really strong company and be confident talking about it,” she says. “Investors want to make money and building a strong company will make money for everyone.”
In some cases, women are not scaling their business to a big enough size to attract significant funding.
Isabel Fox, head of venture at White Cloud Capital, has seen 2,500 presentations and met about 150 founders in the past year. Only a quarter were women. She says many female entrepreneurs have successful “lifestyle” businesses that aim to make a few million pounds or dollars a year but are not dreaming bigger. “Men have the confidence to say, ‘I am going to have the next billion dollar business’, and they will knock on 30 to 40 doors, and if they don’t get any money they just say ‘those investors, just don’t get it’, ” she says.
“The funding issues for women entrepreneurs need to be addressed even before the venture capital stage,” says Susanne Chishti, co-editor of The Fintech Book and chief executive and founder of Fintech Circle, Europe’s first Angel Network focused on technology investment in the financial services sector.
She explains that the funding ladder starts when family or friends put money into a business idea followed by private angel investors who provide the first external funding round.
“The problem is that financial technology firms operate in a male-dominated environment,” she says, noting that most bank customers, investors and most senior decision makers across financial services and technology are men.
Ms Chishti adds: “A lot of big cheques are being written by men for men. Being given an introduction and knowing people is very important to a company in its very early stages.”
However, some venture capitalists say there has been some progress for female founders. Eileen Burbidge, a partner at Passion Capital, an early-stage technology venture capital investment company based in London, says that the representation of women among founders is improving. She has more than 2,000 approaches from start-ups every year and, of those, female founders have increased from about 3.5 per cent to 5 per cent. “It is getting better, slowly,” Ms Burbidge says.
She advocates more entrepreneurial education in universities to encourage women to pursue start-up ideas.
Both female founders and investors agree that when a venture capital firm has female partners, women have a better chance of securing funding. Ms Burbidge’s firm has invested in 52 founders in the past five years and four of those have been women.
Indeed, adding to the number of female venture capitalists on selection teams would be another step towards increasing the amount of money going into start-ups founded by women.
Astia’s Ms Vosmek says that the key to increasing performance and funding for female founders is to have a diverse mix of investors on venture capital teams. “The best group performance is not with likeness, it is with differences.”