VC investors dislike women more than they like profit
In her first article for AltFi, Hannah Duncan highlights the staggering gulf in venture funding between men and women.
It’s enough to make you want to hurl your skinny latte at the wall. Preferably a freshly painted white one. 40 per cent of all early-stage fintechs are led by women. Yet investors – blinded by prejudice - are only willing to part with 4 per cent of funds. It’s not a coincidence. It’s a disgrace.
Prejudice is blinding logic
Almost half (40 per cent) of early-stage start-ups are founded or co-founded by women. But when it comes to securing capital, these hopeful candidates face a barrage of additional obstacles, that male-founded companies simply don’t have to contend with.
“A concrete example is that if a man comes in wearing a fancy, expensive coat, it’s seen as a sign of success. Whereas if a woman wears an expensive, fancy coat, [investors] think she’s not good at handling money – or she’s spending a lot”, esteemed psychologist and fintech leader Elin Helander explains to me. Along with other researchers, Helander has conducted extensive studies into gender-related bias in business.
“Our brain is designed to put everything into categories”, Helander elaborates. “But these categories easily turn to prejudices. Just because you acknowledge them… it doesn’t mean they go away”.
Across investment rounds, women are frequently interrogated about their homelife too. A hurdle most men do not have to jump. “Quite often I was told that because I have four children, I’m uninvestable”, reveals Gemma Young, founder of the award-winning Women of Fintech community and Chief Growth Officer at TechPassport. “But there are just as many male parents as female parents”.
That women get asked negative questions in funding interviews is already well-documented. While men are asked to project their vision, women are scrutinized on how they’ll handle failure. Infuriatingly, this is frequently cited as the reason why so many female-led fintechs are ditched early on.
What’s more, the latest findings from Innovate Finance show that female-led fintechs receive just a microscopic 4 per cent of fintech investment in the UK. It’s SO wrong. It’s blatant sexism. It’s deeply unfair. And – stupidly - it’s also hurting the investors themselves.
Women-led businesses are more profitable
Anne Boden is not an outlier. Far from it. 2018 research from BCG reveals that for every dollar received in funding, female founders bring back 78 cents, while male founders return just 31 cents. Less than half. Women-led companies are officially more profitable.
“Investors are missing out on making a lot of money”, eye-rolls Sofie Blakstad, founder of humanitarian blockchain, HiveOnline. Blakstad has worked for eight major banks, built five core banking systems, written two books, and founded one hell of a fintech. She’s also the person the UN calls when they need a consultant. That SHE struggles to secure funding blows my mind.
“One of the things I say to founders – if they’re women – is to just find yourself a business model that makes money. Because you’re not going to raise any, at least until you have a lot of customers”, Blakstad advises… Something Adam Neumann, founder of WeWork – which lost investors a staggering $4.4bn last year - has not had any problems with.
Last week, venture capitalist firm Andreessen Horowitz plunged $350m into Neumann’s new company, Flow. As of today, Flow has no product, no customers and very little in the way of a website. Yet, amazingly, investors are surging forward with millions of dollars. "I have literally built whole core banking systems for a fraction of this kind of money”, sighs Blakstad.
Blakstad’s battle highlights another gross injustice within the fintech investment scene. “You get a lot of products designed for educated white men”, she points out. “Tech companies are not supporting demographics outside a very narrow band of customers. A lot more impact companies are founded by women”. She’s right.
Nearly every female founder I talked to – over ten – had sustainability entrenched in the business model. Worldwide, research suggests that women entrepreneurs are more engaged in green and social issues too. In a cost of living and climate crisis… can investors really afford to ignore these businesses?
Investors must do better
Even in rejection, female-led start-ups are getting a raw deal. Niki Issaia is the founder of Charles, a stealth-mode tech firm targeting sustainable fashion. As she embarks on her funding journey, she’s encouraging investors at least offer tangible and robust feedback. “I don’t want anyone to be lenient with me”, Issaia asserts. “I want them to be as aggressive, harsh and critical of me as they would any founder”.
Taking time to give constructive criticism might do more than just help with the next round of interviews. It could push investors to reflect and consider whether it was the start-up business model or their own sexist evaluation that needs fixing. After all, our planet is suffocating. The wealth gap is widening. Investors need profits.
Like smashing a cup of coffee against the wall, investors are wasting resources, destroying opportunities, and making one hell of a mess. For god’s sake. The solution is obvious. We urgently need investment in female-led fintech. It’s time to end the antiquated thinking and start opening the wallet… Your profit margins will thank you for it.