Gender inequality in funding and investment circles is a significant barrier for female-led entrepreneurs, impacting their ability to scale businesses and achieve financial success.
Despite the growing number of women entering entrepreneurship, they face numerous challenges that their male counterparts often do not. From biased investment practices to lack of access to networks, the systemic inequalities within the funding ecosystem perpetuate a cycle that disadvantages women in business.
The funding gap
The most glaring issue faced by female entrepreneurs is the funding gap. Just recently, we seen the mismanagement of the latest funding from Innovate UK’s Women of Innovation programme showing that even these schemes can succumb to the very bias they are designed to protect against.
Multiple studies tell the same story – female founders receive a disproportionately small percentage of venture capital (VC) funding. For instance, in 2022, only 2.3% of venture capital went to female-only teams, a statistic that has barely budged in recent years despite the increase in the number of women-led startups. This stark disparity is not due to a lack of viable female-led businesses but rather reflects deep-seated biases within the investment community.
One reason for this funding gap is the investor profile. The majority of venture capitalists are male, and research shows that people tend to invest in individuals who resemble them—often referred to as “homophily.” This means that male investors are more likely to fund male entrepreneurs, who they might relate to or view as more credible based on shared experiences or perceptions. This bias, whether conscious or unconscious, results in fewer opportunities for female entrepreneurs to secure the capital they need to grow their businesses.
The impact on business growth
The lack of funding and support has tangible consequences for female-led businesses. Without sufficient capital, these businesses are often unable to scale at the same pace as those led by men. This not only affects the financial success of individual entrepreneurs but also limits the overall economic impact that women in business could have.
Moreover, the underrepresentation of women in entrepreneurship has a ripple effect, as fewer female role models exist to inspire the next generation of women entrepreneurs.
In addition to stifling innovation and diversity in the marketplace, the underfunding of female-led businesses also represents a missed opportunity for investors. Studies have shown that female-led startups often deliver higher returns on investment than male-led ones, yet the biases within the investment community prevent these opportunities from being fully realized.
Efforts to address the inequality
There is no doubt that there are ongoing efforts to address gender inequality in funding and investment. However, what has been shown with the ‘Innovate UK’ debacle, is that women are still considered lesser than when it comes to decision making. Promises are readily broken and women are expected to quietly accept outcomes that are wholly wrong.
More than ever, initiatives such as female-focused venture funds, angel networks, and accelerator programs to provide women with capital and support are needed and although there is a growing awareness within the investment community about the importance of diversity and the need to challenge existing biases, meaningful change is still required to level the playing field for female entrepreneurs.
Addressing the disparities being faced is not only a matter of fairness but also of economic necessity, as empowering female entrepreneurs can lead to more robust and dynamic markets.
By Nicola Plenderleith CIPD L5 & United Nations Global Compact Target Gender Equality Ambassador (Head of Talent Acquisition – Leyton UK).
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