10 November 2015

Will crowdfunding smash gender bias in SMEs?


Last month the Davies report suggested a voluntary target of women holding 33% of FTSE 350 senior executive roles by 2020. However, it is important to address female leadership beyond large corporations. Government statistics reveal under 20% of SMEs are female-led. A plethora of studies prove women in senior positions in large companies improve performance, and now evidence suggests the same is true for smaller companies.

As a RBS study concluded, “when firm characteristics (size, sector, age, funding) are controlled for, women-owned firms outperform those owned by their male counterparts”. Female-founded and led SMEs have been referred to many times as key to the recovery of the UK economy, but if these companies are more successful and are vital to the economy, why are there still so few female entrepreneurs?

Surveys suggest women are starting businesses with around 66% less funding than male entrepreneurs, and their financing is drawn from far narrower sources. There is deep-rooted, if not intentional, gender bias in venture capital investment. Reports this year showed tech startups led by men are 86% more likely to receive VC funding than women.

A team at MIT had men and women pitch the same product to VC investors, and saw the men far more successful at securing funding. Gary Stewart from Telefónica’s startup accelerator branch, Wayra, asserted that in his experience, women are more reluctant to relinquish large portions of their businesses to investors, thus receiving less funding.

There is also something to be said for the emphasis on pitch sessions in VC, which place boundless confidence and unfaltering presenting skills at the core of the ‘ideal’ entrepreneur. As Maila Reeves, a campaigner for women in business believes, this approach disadvantages women: “We women don’t like to go out and shout about the amazing things we’re doing.”

Very few women lead VC firms. A 2014 report in the US identified just 6% of global VC partners as female. Some men in the industry claim it is hard to relate to the typically gender specific startups women run. However, with increasing numbers of women involved in finance and tech start ups, this excuse will rapidly become harder to maintain.

Times are already changing. On Kickstarter, 65% of female-led tech projects were successful in reaching funding targets, in comparison to just 35% of those run by men. This trend is replicated across sectors, with female-led companies achieving a 45% success rate.

Another site, CircleUp, claimed female-led firms on their platform are almost 10 times more likely to raise funds than from banks, and five times more successful than from VC.

Successfully crowdfunded female-led companies now include household names like Eventbrite and Net-a-Porter. These statistics and examples prompt the question: why are women so much more successful at securing funding online?

The high proportion of female investors on crowdfunding sites suggests one answer to this question. One study revealed almost 44% of investors in Kickstarter campaigns are female, and evidence shows women are more inclined to back female-led projects, just as male VCs have a bias towards entrepreneurs from their own demographic.

The increase in female investors has extended to the creation of female angel networks such as Angel Academe, which seeks to invest in a majority of female-led companies. Whilst activist investors are important in aiding women’s entrance into entrepreneurship, there has been recent growth of VC funds specifically investing in female-led companies based on a perception that female entrepreneurs are ‘underpriced assets’.

In 2010, Dave McClure founded ‘500 Startups’, investing in underrepresented entrepreneurs. To this day, McClure stresses their investments are not motivated by an innate dedication to diversity. “I’m a greedy f***ing bastard…we’re doing this because we think we’re going to make money. We invest in women and minorities because we think they’re underpriced assets that the rest of the world is missing.”

Similarly, when Intel Capital launched its Diversity Fund this summer, the fund’s managing director, Lisa Lambert, stressed that the fund is not philanthropically orientated, but focused on revenue generation. Hopefully successful female crowdfunded projects will continue to resonate into VC and angel investment, recognizing female-led companies as commercially important with financial benefits to be reaped.

While generalizing, many people have drawn attention to the fact crowdfunding emphasizes skills women are typically adept in, such as collaboration, transparency and composing strong profiles demonstrating leadership qualities. By eliminating the need for face-to-face presentations, some have suggested women are less disadvantaged than in VC.

VC has been described as an ‘old boys’ network’ and CircleUp founder Ryan Caldbeck believes the transparency of crowdfunding helps those outside the established funding networks raise capital. “Entrepreneurs in general are not well served by the existing closed network of funding…online marketplaces are open and transparent. The result is quality entrepreneurs find success more efficiently.”

Crowdfunding has numerous benefits for women. By increasing participation of women on the investing side as well as recipients, women will take a larger share of funding, founding successful businesses and entering male dominated sectors.

However, is financing the only barrier to female entrepreneurship? I suspect not. Female entrepreneur role models are scarce, those existing obvious for their atypicality.

Women seeking to found companies often have lower levels of training and experience in management roles, less extensive and effective business networks and face societal pressures to conform.

Women in tech startups have reported harassment and discrimination for their involvement in a typically male field. Assessments of past experiences and skill may compound low confidence and risk aversion, resulting in female entrepreneurs experiencing ‘imposter syndrome’.

Whilst finance is an important barrier to female entrepreneurship, it is merely one of many, and others may not be so readily solved by the growth of crowdfunding.

Olivia Townsend is a graduate in History from the University of Oxford, providing fresh perspectives on current trends and issues