Lucy Chow talks about why investing in female founders generates a great return, challenges on access to smart finance for women founders, and importance of quality mentorship for women entrepreneurs.
She was a guest editor of the World Class Startup magazine’s special edition for the Global Fundraising Stage of the World Congress of Angel Investors, WBAF 2022. Angel Investor Review now shares her article with its subscribers online. Lucy Chow is an Executive Investment Committee Member at the WBAF Angel Investment Fund, the Secretary General of the WBAF’s Global Women Leaders Committee, Senior Senator at the World Business Angels Investment Forum.
Supporting Women Entrepreneurs is key for a real global economic recovery. We have all seen the abysmal statistics regarding how much VC funding goes to women entrepreneurs. It is all good and well to say that we need to support small businesses, or founders. This means all investors need to ensure a greater percentage of their funds go to female entrepreneurs. And if you are not in a financial position to do so, then open your network and/or volunteer your time and expertise to help a woman entrepreneur. There are many ways to support businesses just by being a loyal consumer.
Entrepreneurship has been the backbone of every economic recovery. The 2019-2020 Global Entrepreneurship Monitor report details that challenging economic times can ignite entrepreneurship, jumpstarting job creation. In the US, minority and women-owned businesses were particularly strong job creators and stabilizers of the economy following the 2008 financial crisis.
Investing in Female Founders Generates a Great Return
The finding that women are quick to shift their business models to become more relevant has been confirmed repeatedly. PitchBook All Raise 2019 found that teams with at least one female founder exit faster (6.9 years versus 7.4 years for all-male teams) and are growing faster at the time of exit. Furthermore, a review of First Round Capital’s first 10 years found that “companies with a female founder performed 63% better” than their investments into all-male founding teams. Previous Kauffman Fellows research also shows that a startup with a female founder and female executive will go on to hire 6x more women than teams with all-male founding and executive teams.
If you are convinced that investing in women led start ups is one of the most effective tools to revive growth, create jobs, generate transformational economic impact, here are some tangible action points.
Provide Access to Finance
The most significant hurdle women entrepreneurs face is their unequal access to finance. That’s true worldwide. Despite women entrepreneurs being ready and able to receive funding of all types, companies (co)-founded by women receive less than half the investment capital as male-founded companies on average. According to a BCG study, US women founders receive only a small fraction of venture capital deals (4.4 percent) and only about 2 percent of all capital. This enormous gap was narrowing, until the pandemic. In 2020, funding to female founders was down 31 percent from 2019, while funding for all-male teams dropped by 16 percent.
In MENA, the amount of venture capital going to female entrepreneurs was lower in 2021 than it has been for the last five years. That’s especially true for startups with all-female founding teams, which have raised just 2% of venture capital this year, according to Pitchbook. While funding in diverse teams did increase in 2021, 83% of VC went to all-male teams in the US. In the MENA region, 91% of funding went to all-male founding teams.
If you’re a policymaker, include micro-and small businesses in your bailouts and support measures, as women entrepreneurs are relatively more represented in those sectors. To ensure private-sector financial support and access to credit is equally available to women and men, track it by gender and other diversity metrics to hold lenders accountable.
If you’re a woman, or man with some investment capital, consider targeted investing in addition to philanthropic activities. Women venture capital decision-makers improve the odds of female founders getting funding by as much as 70 percent.
Support Mentorship Programs
We know the formula for supporting women-led startups. Research by the International Labour Organization, Brookings, McKinsey, and the World Bank has found that support programs which combine financing (a mix of grants and investments) with mentorship, peer-to-peer networking opportunities, and targeted training, have the soundest track record of supporting women-led start-ups and the growth of existing female entrepreneurs.
Accelerators and incubators can insist on meaningful diversity for recruitment and adequate programming and networking.
Amplify Success Stories
By posting or advertising services to friends via word-of-mouth, social media posting, writing blogs or engaging communities online, we can promote products and businesses at lower cost with greater targeted impact than traditional mass advertising.
If you like, comment or share a friend’s post, video, tweet or blog, your own vast network is exposed to the concepts and ideas being promoted. It takes very little effort from us to help an entrepreneur grow her business this way, and it makes a big difference for branding and engaging customers.
Whether it’s connecting to other customers, consultants or coaches, we can all help in offering opportunities through referrals, networking and social media. Access to business connections is also vital for female led start ups.
Women entrepreneurs play a critical role in stabilizing the global economy. Our concerted response needs to include supporting women entrepreneurs as a condition to unlocking sustained growth. Investing in women is investing in the future. WS
