Entrepreneurial gender gap – funding is still a struggle
One of the key barriers that female entrepreneurs face when developing their businesses is a lack of access to venture capital or funding.
Women in the UK launch businesses with 53% less capital on average than men. They are less aware of different funding options and less willing to take on debt throughout the business life cycle. Consequently, female-led businesses may be more constrained to grow and more vulnerable in the face of an economic downturn. This has been observed for all sizes of businesses.
Reasons why female entrepreneurs struggle with access to funding their businesses:
1. Financial inclusion of women is still dragging
Women, especially in developing economies, face several barriers to financial inclusion, such as not having access to a bank account (over one billion females worldwide do not own a bank account) or not having the right to own land (40% of countries have restrictions in place when it comes to female ownership of property). Gender inequality in financial inclusion makes it more challenging for women to obtain a business loan. Women-led businesses are therefore more reliant on personal savings and spousal funds.
Number of females worldwide with no bank account
Percentage of countries with restrictions on female property ownership
2. Venture capital financing is harder for women
Venture capitalist funding is less accessible to female entrepreneurs compared to men. Women-owned businesses attract less venture capital investment. In Europe, venture-capital-backed tech companies with all-male founding teams receive 93% of the capital invested, while 5% of capital goes to mixed teams, and only 2% to all-female teams.
In the US, financial research company Pitchbook suggests that mixed entrepreneur teams received USD 23 billion in funding in 2020 compared to USD 3.3 billion for female-only entrepreneurs. It is worth noting, however, that female funding from venture capital has improved in the past five years (+83%), albeit at a slower pace than for mixed teams (+95%).
3. Fewer females apply for venture capital funding
One possible explanation as to why women receive a smaller share of venture capital funding compared to men is because there are significantly fewer women in the process than men. This may be unsurprising since women tend to operate smaller businesses and so have less need for venture capital funding, which targets businesses with revenues of USD 1 million or above. However, female-only teams underperformed relative to the other two groups by securing only 6% of the funding. This sparks additional questions as to whether there might be other factors at play, including a potential gender bias in the venture capital process.
4. Getting funding depends strongly on networking
According to So-Young Kang, the founder & CEO of Gnowbe, a learning platform, getting funding depends strongly on networking. Many women, being excluded from male-dominated networks, more often struggle to get adequate funding. "Fundraising is network-based, it is about trust. If you've already had good relationships with male founders and have known each other for a while, then there is trust," says So-Young Kang. "The challenge is that, even in the boardroom, there aren't many women in the room. When they are not in the room, they are not part of those social networks…and the social networking is a critical part." According to her, this is one of the root causes of why females struggle with getting funding.
Entrepreneurship has the potential to offer a sustainable path toward gender equality. According to The World Bank, small and medium enterprises (SMEs) account for 50% of employment worldwide. In addition to generating income for women business owners, entrepreneurship has the potential to create additional employment, thus further creating income across the economy. Hence, encouraging female representation in entrepreneurship could contribute toward reducing inequalities as stipulated in the UN SDG 5 (Gender Equality: Achieve gender equality and empower all women and girls).