Hannah Morrow
You don’t need to look at many statistics to see there is a significant imbalance in the direction of funding in venture capital, and we are now seeing a number of venture capital groups addressing this through female founder funds. This is exciting progress and no doubt a step in the right direction, however research shows that perhaps more importantly, deep structural transformation is required. We as an industry need to take a look at ourselves and do the hard work to examine what it is that got us here in the first place. Otherwise, we risk missing an opportunity to make real, sustainable, long-term change.
As a lawyer, I always want to look at the stats so let’s start there. It only takes a quick look at the primary and tertiary education data to see that female students perform no worse, and in some cases even better than their male peers. In Australia in 2020, despite only 48.7% of the HSC-aged population being female, 54.4% of students who received an ATAR were female, and females achieved 54.63% of the ATARs between 70 and 95[1] . Data also shows that between 2007-2017, 59.5% of undergraduate and postgraduate degrees were awarded to women[2]. However, when we look at the venture capital ecosystem, that’s where the figures start to significantly drop off.
According to the Advisory Board Centres recent paper titled ‘Achieving Scale’, only 36% of companies in Australia are run by women[3] (some reports have this figure as low as 20%[4]). More recent numbers also indicate than only 5.3% of venture capital funding goes to businesses with only female founders[5]. To add to this, when funding is going to female founders, they are typically raising under $1,000,000, compared to around $2,500,000 for start-ups run by male founders[6] - these figures are from the US, however we have no reason to believe the outcomes are different here.
What can’t be ignored in these figures is that something is happening between education and then into careers, which is both discouraging women from starting their own business but even then, discouraging them from participating in raising capital through venture or not viewing them equally, when they do.
And while we are now seeing funds dedicated solely to providing funding to female founders to attempt to bridge this gap, to me it looks like there are several other things which we must take accountability for as an industry before we will see real outcomes.
Firstly, I believe the issue starts early, girls are trained to be perfectionists and to be careful at all costs. From a young age, girls aren’t encouraged to take the same risks as their male counterparts. To use Jamila Rizvi’s example in her book ‘Not Just Lucky’, when you watch parents in a playground they will consistently be watching and supporting girls on the equipment, telling them to be careful and quickly swooping in if they fall. Boys on the other hand are encouraged to try new challenging things, are told they’re ok if they fall, to get back up and try again. At a basic level this is teaching girls that it is dangerous to take risks and safer not to try without help. This happens through-out a girl’s life until it is deeply engrained that risks are bad, and safety is good. It is perhaps therefore no surprise then that we see less women diving into the chaos that is starting their own company.
So, while that is a structural societal issue which will take a long time to solve, if we fast forward a few years in the life of a business owner, what happens is something that should be examined by the venture capital industry immediately. That is the skew of privilege and accessibility awarded to male founders in terms of access to services such as legal, accounting and finance. As well as the internal bias when women do finally get in the door.
There are two main reasons men are provided different opportunities to women. Firstly, its networks. Traditionally services such as legal, accounting and finance which are critical to starting a business are heavily dominated by men, which commonly means the network affect is bias towards them. This means female business owners have tended not to have the same level of mentoring, advice and assistance leaving a confidence gap when founders are presenting and promoting their businesses, but also means they don’t have the same networks and connections getting them into the door to VCs.
However secondly, it is also the bias of the people in the industry once female founders do walk through the door. Anecdotally, I have heard many times of female founders being asked about their plans for family. Otherwise, as researched by the HBR, women are consistently questioned about potential losses, while men are asked about gains[7]. So even if VC’s aren’t asking gendered questions upfront, the research indicates that bias is no doubt colouring the decision-making process. This makes sense too when you know that 90% of VC partners and decision-makers are male[8].
So, what is clear is that while mandating venture capital funds for female founders will help, it is an approach that puts a band aid over a gaping hole. Like diversity quotas on boards, it is an excellent start because it will force funds to be directed to female founders, it will force people to begin at least looking at female run businesses. It does not however go to the actual core of the issue, which is that we as an industry are responsible for failing female founders because of the internal bias, networks and unequal opportunities provided to diverse founders.
We need to be asking the hard questions - why is it that your venture capital fund only has 30% female founders, and why has that issue not been addressed before? Why is it that 90% of your investment analysts are males, and what does that mean for the pipeline they are examining? What criteria are you applying when you see a start-up pitch and have you taken into account the fact that female founders are likely to be more conservative in their projections? Are you considering the hurdles that are faced by diverse founders that mean their clothing might not be as polished, or their public speaking skills might not be so advanced, or that perhaps a pitch in front of 100 strangers only serves a certain group of founders?
These are hard truths to see. However, the reality is that if this unconscious bias isn’t addressed, then diverse founders are being set up to fail.
We need to make sure that access to the financial system is democratised, so all founders have access to the fundamental services which enable start-ups to flourish. We need to be bypassing the network effect which is skewing the ability for founders to walk through the door. We in the VC industry need to take responsibility for the failings because it is us that have created this scenario so it is only us that can work towards creating real, long-term change.
[1] University Admissions Centre. (2021, March). Report on the Scaling of the 2020 NSW Higher School Certificate. Retrieved from https://www.uac.edu.au/assets/documents/scaling-reports/scaling-report-2020-nsw-hsc.pdf
[2] Workplace Gender Equality Agency. (2019, August 9). Higher education enrolments and graduate labour market statistics. Retrieved from https://www.wgea.gov.au/publications/higher-education-enrolments-and-graduate-labour-market-statistics
[3] Advisory Board Centre. (2020). Retrieved from Acheiving Scale: Breaking Through Barriers for Female Founders: https://www.advisoryboardcentre.com/female-founders-report/
[4] SBS. (2020, November 15). Retrieved from The number of female founders in Australia was steadily rising - then coronavirus h: https://www.sbs.com.au/news/the-number-of-female-founders-in-australia-was-steadily-rising-then-coronavirus-hit
[5] Sydney Morning Herald. (2021, July 18). Retrieved from Funding to women founded startups in Australia defies global drop: https://www.smh.com.au/business/entrepreneurship/funding-to-women-founded-start-ups-in-australia-defies-global-drop-20210718-p58aoa.html
[6] Start-up Daily. (2021, June 21). Retrieved from Why investors should back female-led startups: startupdaily.net/2021/06/why-investors-should-back-female-led-startups/
[7] Start-up Daily. (2021, June 21). Retrieved from Why investors should back female-led startups: startupdaily.net/2021/06/why-investors-should-back-female-led-startups/
[8] Start-up Daily. (2021, June 21). Retrieved from Why investors should back female-led startups: startupdaily.net/2021/06/why-investors-should-back-female-led-startups/
