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The Venture Capital Gender Gap: What Qualifies As Female Content?

by Ramsha Khan
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Venture Capital Gender Gap | Womopreneur

Venture capital has become a sine qua non for starting up a business in today’s capitalist world.  The long-term growth potential that small businesses have is further expounded by venture capital. 

Venture Capitalism entered the Indian corporate sector in 1986, following the country’s economic liberalisation. Foreign investors can now perceive the potential and expansion of the Indian sector thanks to India’s success in Silicon Valley. A significant amount has been invested, more than the average amount globally, as a result of new investors entering the market.

The guidance, consultation and value a business gets by VC are needed by all the businesses out there in this geopolitical competition, is it not? So why has the growing gender-gaps between VC funding always caught the bulk of our attention? There is a severe lack of inclusion today in the innovation economy. The previous years have dwindling data on Venture Capital, the women-led businesses.

VC Investment in any women-majority company helps in materialising their idea to establish the enterprise and their overall promotion in the business arena. By doing so, investors contribute to making the business sector more diverse and help women be more confident and independent in all outlooks. In a study conducted by DealStreetAsia, it was found that women-led companies delivered better results than men-led businesses. Despite this, the former received only 0.3% of the VC Funding in toto, a clear example of the underrepresentation of women in the Indian Startup Ecosystem. The alarming Gender VC gap is undoubtedly a pitfall to society’s development and economy at large. But, at a granular level, it adversely affects the career of the women involved in the business. To understand the ever-worsening condition, we first need to learn what a woman-led business is.

Nancy Wilson, Founder & CEO of the Canadian Women’s Chamber of Commerce, in an article published in 2019, mentioned that for a company to qualify as “women-led”, just one woman is needed in the core team. However, the Director of External Communications for the Business Development Bank of Canada, Shawn Salewski, believes that for a company to be called a “women-led company”, it takes a woman founder, a co-founder or a woman in an Executive Position, holding the position for at least a year.

The writer found a loophole in the pre-requisites set by the organisations for VC funding- A woman is in an executive position for a certain period, but left the job for some reason, leaving the company to be called “man-led”, ultimately leading to disqualification for funding by a setup to promote female entrepreneurs. Another case where the former female executive still works for the company, but for a different position, would not get funding from such an organisation as there is a null representation of women in senior management.

At least one female directly related to the concerned industry should be on board for a fund that is devoted to support women in the industry, for instance, in the case of technology, the CEO, and CTO shall be a female along with other tech and development roles.

What do we Get from the Stats

If we look at the data from the past few years, it would be utterly evident that the gender gap in VC funding has been there in the industry for quite a while, the lockdown making it worse.

The World Bank released its Female Entrepreneurship Resource Point Report which said that female entrepreneurs cannot make investments for a prolonged period. The reason given was the short-term nature of the loans that they take for their businesses. They rely on loans from family and friends and their own savings or micro-loans to survive their businesses. Another survey by Kauffman Foundation found that approximately 80% of female tech startup founders exhaust their personal savings as the primary source of funding.

Let’s break down the VC Funded Startups in 2021 based on gender

In the US, the female-founded companies, too, got the lowest funding in 2021 since 2016- only 2% of the $330 billion invested by the VCs!

The funding however, received by the female entrepreneurs, is typically capital for conventional “feminine” areas, such as children’s products and fashion.

The Obstruction

As to why women don’t receive VC funding for their businesses, there are many reasons given by the analysts and people in the game. 

First, we live in a man’s world. Similar to the manufacturing sector, where one in three manufacturing professionals is female and 25% of leaders are female, the Private Equity and Venture Capital (PEVC) business slackens historically male-dominated industries. Also, it lags the infrastructure sector, where women hold 19% of senior posts, according to the Organisation for Economic Co-operation and Development (OECD).

Second, Venture Capitalists fund businesses that prima facie seem like VC-backed businesses, and businesses started by females don’t have that. 

Third, women-led businesses are expected to be in areas where growth is smaller and steep, unlike technology, where the growth expectancy is comparatively high.   

Apart from these direct reasons, there are subconscious biases that put women on the backfoot. The perception of women as professionals and work and their primary role as a homemaker and child-bearer, the traditional stereotypes make investors pause for a moment and rethink their choices before funding a female-founded startup.

The way forward                     

Female Content (FemCon), sounds like CanCon – The Canadian Content, does it not? Just like the Canadian Radio-Television and Telecommunications Commission (CRTC) took a step forward to increase the representation of Canadian artists in the industry by introducing a system called Multi-Agent Planning Language (MAPL). These were points made based on the content created by artists at different positions, such as the Music Writer, the performer, the place of performance, etc.

So, for setting up a similar percentage or minimum requirement for a “female-led business”, a similar model can be implemented. The basis of the measurement shall go as:

  • Whether the founder of the firm is a woman or a man,
  • What is the representation of women in the R&D team?
  • Number of females holding executive positions
  • How many members of the Board of Directors and Advisory Board are women?

If the firm has a separate section of the business dedicated to only women-centered problems and delivers a solution to them, which would be a cherry on the top.

Considering all the points while qualifying the business as “female-led” shall be a too narrow approach. Rather, it should depend on the industry in which the company lies as well as the Investors’ priorities.

To conclude, the model cannot be too rigid, nor can it be put on hold. For a country to compete on a Global level, strong representation of women in all areas today, is nothing but a need.

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