The lack of Venture Capital (VC) funding for female founders remains a global challenge, hindering gender equality in entrepreneurship in Australia and worldwide.
Despite efforts spanning decades to promote female entrepreneurship and the proven financial prowess of women-led ventures, statistics from Venture Capital Journal reveal a discouraging reality: in 2023, women-led ventures captured only about 3 per cent of the $107 billion raised by venture funds globally, marking a significant but disappointing 2 per cent increase from the previous year.
In 2022 an Assistant Professor of Organizational Behaviour at London Business School, Dr. Dana Kanze, and her research team conducted two comprehensive studies involving nearly 400 tech ventures led by male and female CEOs. Their research delved into the funding outcomes for female entrepreneurs across various industries and regions, uncovering persistent challenges and gender biases impacting investment decisions.
Their findings illuminate several key points.
Firstly, female-led ventures operating in male-dominated industries face disproportionate disadvantages compared to their male-led counterparts. These industries, prevalent in the labour market, present formidable barriers for women seeking funding and avenues for growth. The disparities extend beyond funding amounts to encompass lower valuations and diminished equity for female founders, underscoring entrenched biases within the investment landscape.
Moreover, cognitive biases significantly shape investor perceptions, particularly regarding industry fit for female founders. The lack of diversity among investors exacerbates these biases, with male-dominated decision-makers offering limited support and expertise to ventures in female-dominated sectors. Notably, accredited investors exhibit less bias against female-led ventures in such industries, emphasizing the role of financial literacy in mitigating industry-fit bias.
The implications of these findings are profound. They portray a “double bind” for female entrepreneurs constrained by perceptions limited to certain industries. Thus, they constrain their growth potential and exacerbate gender disparities in wealth accumulation and entrepreneurship rates.
Despite the challenges, there’s a glimmer of hope on the horizon. From 2022 to 2023, there was a modest two per cent increase in VC allocation to female entrepreneurs globally. Governments worldwide are awakening to the economic contributions of female entrepreneurs, rolling out tailored financial and programmatic support. Recognizing that women contribute only 37 per cent of global GDP despite constituting roughly half of the population, initiatives aimed at gender parity in entrepreneurship could potentially boost global GDP by three to six per cent, according to BCG. This underscores the urgent need to address gender disparities in venture capital funding and the potential economic benefits of supporting female-led ventures.
Venture capitalists are increasingly recognising the untapped potential and unique perspectives of female entrepreneurs. Research has demonstrated that investing in women-led start-ups offers diversification benefits and promises high returns on investment.
Additionally, there’s a surge in female-led incubators, accelerators, and venture funds tailored to support women founders. These programs offer not just financial backing but also invaluable mentorship, networking opportunities, and resources tailored to the specific needs of female entrepreneurs.
As success stories of women-led start-ups multiply, stereotypes and biases against female founders are being challenged, leading to a shift in attitudes and increased investment in female-led ventures. With growing awareness, a supportive ecosystem, success stories, and government initiatives, the landscape is evolving favourably for female founders, offering more opportunities to access the venture capital needed to transform innovative ideas into thriving businesses.
