This Week's Obsession: The 2% Conundrum of Female Founders
Photo: Female founders gather to support one another at Founders' Social, a networking group founded by Tamta Gamezardashvili
Who will fund female business innovations?
This week, we discovered yet another female-founded company is facing closure due to a lack of funding. It's not because they failed to secure funding, but rather because their lead investor turned out to be unreliable. Unfortunately, by the time they realised the funds wouldn't come through, their other options had vanished. Without the support of their lead investor, they lost the remainder of commitments.
We faced a similar situation with an investor from Dubai who signed a term sheet for a large investment in More. We did background checks and ID verification of this individual to ensure he was legitimate. After two months of communication regarding delays in moving the funds to the UK, we learned this is due to source of funds. Now there has been complete radio silence for weeks. This marked our second negative experience securing investment. In the first instance, we wasted time and money on due diligence and documentation and then were asked to cover anti-money laundering fees during the term sheet negotiation. When we refused, the investors disappeared, an obvious scam operation, which we reported.
Both of these investors came through an angel investment platform; a lesson learned here is that doesn't mean they are bonafide. While the financial loss is painful, the emotional toll and legal costs make it even worse. Not to mention the time invested that takes your focus that could gone to other priorities. We feel it's crucial to shed light on this issue as female founders are often targeted by unscrupulous individuals offering investment opportunities in exchange for fees. These schemes exploit the unique challenges faced by female entrepreneurs, such as limited access to funding and networks, by presenting seemingly attractive yet fraudulent offers.
The 2% Conundrum
Anyone fundraising currently will tell things are much more challenging. According to CB Insights state of Venture Report, funding has declined by approximately 62% from its peak in 2021. This sharp decrease reflects the market's correction from the high valuations and abundant capital availability seen in previous years. This is not good news for entrepreneurs, especially female entrepreneurs due to the 2% conundrum.
Recently, we had the privilege of attending a screening of a documentary called, Show Her the Money. This innovative documentary uncovers the alarming fact that less than 2% of venture capital funding is allocated to women-led start-ups. The film exposes the inherent biases and challenges women founders encounter, while also presenting practical solutions for harnessing this largely overlooked potential. There was powerful panel of women who joined the producer, Catherine Gray, including Azin Radsan van Alebeek, Kristen Weatherby, Sarah King, Allison Jegla, and Mirela Sula to discuss how we can all be part of the solution. These women are on a mission to change the world for female founders. But how many female founded companies will close or note be started before this happens?
One thing that shocked us, is that many of the people at the screening had no idea this was the reality for female founders and many of them were female entrepreneurs. We decided to look deeper into the subject and wanted to share what we learned.
The 2% figure is the percent of VC capital that goes to female founders. When you add in angel investments that number rises, globally to 5% to 8%. The highest numbers are in the US 7% to 10% and sadly the UK and Europe is an abysmal 1% to 5%.
Now the stats vary according to the sources, but the highest statistic reported is that 43% of entrepreneurs are female. Another interesting stat according to Pitchbook, while just 2% of VC capital goes to firms founded solely by women, closer to 20% of VC capital goes to firms with at least one woman as a cofounder, leaving 80% to companies with all male founding teams.
Performance by Gender
What is going on here? Is it that female founders don’t perform as well as their male counterparts?
According to research conducted by the Boston Consulting Group (BCG), over a five-year period, women-led or co-led start-ups generated 78 cents of revenue for every dollar of venture capital invested. In contrast, start-ups led solely by men generated only 31 cents per dollar of investment. This demonstrates that despite often receiving less funding, women-led start-ups are more efficient at generating revenue from the capital they receive.
The research highlights a significant investment gap, where women entrepreneurs receive far less funding compared to their male counterparts, yet they deliver higher returns on investment. This data underscores the potential value in investing in women-led businesses, which are often overlooked by traditional venture capital funding (BCG Global) (Tesonet) (Even Capital).
Is it That There Aren't Enough Females in Venture Capital?
The venture capital (VC) industry is male-dominated, with over 80% of partners being men, leading to a significant bias in funding. In 2023, only about 1 in 4 VC funds went to woman-led companies. It might seem logical that more female VCs would lead to more funding for female-led startups.
However, 2024 research shows the opposite: firms with more senior female VCs actually allocated less funding to female-led businesses. Each additional senior female VC corresponded to a 0.46% drop in funding for female-led startups, equating to about $25,000 less per average funding round. This paradox reflects the entrenched male dominance in the entrepreneurial finance market, where women often defer to male colleagues and may distance themselves from less-powerful women to improve their status. This dynamic may explain why female senior VCs hesitate to fund female-led startups.
Is it the Business Sectors Female Founders Choose?
There is perhaps an issue with the types of businesses that women tend to start. The good news is that female founders’ decisions are typically based on passion for the problem they are solving. The bad news that are many times they are solving issues that are not hot on the male VC’s agenda. Or may not be fully understood, especially businesses that are targeted at consumers – where 80% of the buying decisions are made by women.
The Hot Sector That’s Almost Ensures Funding
AI-related start-ups have been receiving a significant share of venture capital funding. Specifically, about 28% of all venture capital dollars were directed towards AI start-ups in the second quarter of 2024. This marks a record high, driven by substantial deals and a growing interest in AI's potential across various industries. In monetary terms, AI start-ups attracted approximately $18.3 billion in funding during this period, reflecting a 32% increase quarter-over-quarter (The Fintech Times) (Foley & Lardner LLP).
As of 2023, only about 3% of AI-related venture capital (VC) funding deals involved female-led start-ups. Furthermore, when female-led AI start-ups do secure funding, they typically receive significantly less capital per deal compared to their male counterparts (The Alan Turing Institute).
2024 Funding Environment Remains Challenging for All - But Especially Females
The difficulty in obtaining pre-seed or seed funding in 2024 is a result of a combination of economic caution, shifting investment priorities, increased competition, and higher expectations from investors after witnessing the fallout from previous market corrections, particularly in tech-heavy markets. This caution has led to more stringent due diligence and a preference for start-ups that can demonstrate immediate or near-term viability. Now overlay this with the low percentage of funding available to female founders and one might consider throwing in the towel. Or as in the case of the many female funded businesses, they will be unable to keep their businesses going.
Finding investment can be a full-time job and a difficult terrain to navigate when doing it for the first time. For many like us we are still determined. Why? We are passionate about our business and know that it will be the way people will own and access luxury goods in the future, and we know we are the ones to make our vision a reality. We also know that you cannot change the mindset of a whole population without awareness and education and that takes funding – which will we continue to work on securing. In the meantime, Cynthia will return to consulting part time to help fund us until we do.
How Can You Help Drive this Change?
Join the movement either by becoming an angel investor who invests in female founders or investing in female entrepreneurs who are your friends, colleagues, or acquaintances. Even writing small checks can make a huge difference. Like so many other businesses, we are kept going by investments from friends and family. The UK is a great place to invest in start-ups due to SEIS and EIS which provides tax advantages for investors, reducing the risk of capital invested.
Here are some great resources that are available for aspiring angels (and those seeking investment): Female Invest, Ellevest, Astia Angels, She Angel Investors, Pipeline Angels, 37 Angels, Golden Seeds, Portfolia, Angel Capital Association (ACA),and Women Who Tech.
If you are a female founder there people and communities out there who are supporting us: Tamta Gamezardashvili, Founders’ Social, Female Founders Rise, Ellevate Network, Lean In Circles, Ladies Who Launch, Women of Wearables (WOW), Rupa Ganatra Popat, Emmie Faust, Female Founders Rise, Astia Angels, Jennifer Hoffman Founders' Social, Female Invest, Alma Angels, HERMESA and Evie Mulberry.
If you are an investor who invests in female founders, please reach out, so we can continue to spread the word within our networks. And we’d love for you to share this blog with others who would benefit from it.
And now onto the business of More Luxury Club.
A/W Fashion - -The Best Thing About The End of Summer
Summer goes so incredibly fast, especially in England. There are just a few weeks left until the summer holidays will come to a conclusion. There is only one thing that has us looking forward and that is Autumn/Winter fashion collections. As we are proponents of the sharing and circular economies - we advocate finding a few classic pieces to augment your wardrobe. And when it comes to bags, we advocate investing in shares of these beauties, so you can enjoy them without with the financial or environmental impact.
As we do every month, we have curated a collection of nine bags that are bound to be popular this A/W. We then ask our community to choose their top five which will become September's Fab5.
For your consideration we have two bags from YSL, the Crystal Le 5 à 7
and the Giant Bowling Bag. Bottega Veneta has two bags in the collection as well, the Parachute and the Sardine. Others include the Chloé Marcie Small Leather bag and the Jimmy Choo Cinch in brown Suede. The Miu Miu Arcadie in red and the Loro Piana Extra Bag L27 in rust are perfect for adding a pop of colour to your wardrobe.
It's just so difficult to choose! But remember with More you don't have to choose, because you can own 5 bags for the price of one. Shares start at £227 for the Jacquemous Le Bambola to £770 for the Bottega Veneta Small Sardine (see why we love it below).
Make sure to have your say by voting today.
Love it or 'Hate' it? - - The Chrome Effect
Embrace the Renaissance effect and the mid-century modern revival with the bold and stylish chrome trend of 2024. We absolutely love it for bags this autumn and winter.
According to Sydney Stanback, global trends and insight lead at Pinterest, "Cool silver tones and bold chrome are set to take over in 2024 as people swap out their usual neutrals for something more daring." This trend is making waves across various categories, from home decor to beauty and fashion.
Why stop there, this winter, don't be afraid to stand out and grab attention with a stunning chrome piece like Published By's sculptural bag (above), a true work of art. Or opt for a more practical yet chic everyday from Bottega Veneta Sardine pictured below.
Elevate your style by pairing your high-shine bag with a Studio 54-inspired ensemble for a touch of disco glamour. Show off your love for this trend and let us know if you're on board!
