The early-stage investment scene is dominated by men, not only in the developing nations but also the developed countries. For example, a study in 2017 showed that women made a mere 13 percent of the decision-makers in the UK’s venture capital market. The study also showed that only 1 percent of the women-owned business get funding, while the same figure for men stands at 89 percent. Surprisingly, within the UK, third of the country’s home-grown companies are owned by women entrepreneurs. It is amazingly shocking that despite vast numbers of women entrepreneurs in the country, the investors do not like to put their money into their businesses.
The situation in the world’s most powerful country, the USA, is not different. According to Pitchbook, 2.3 percent of the total capital invested in start-ups is given to female-owned businesses in the country. Interestingly, as per a report by Boston Consulting Group, female-owned firms in the country made 10% more revenue over five years as compared to their male-owned counterparts.
The story of women-owned businesses in Singapore is no different. Despite being one of the best countries for female entrepreneurs, Singapore has only (approximately) 26% of the companies that are run by women. Sadly, these businesses have not been able to garner any particular interest in the investor’s hearts. Although there are a few success stories, like that of Hazel Kweh of BloomBack, financed by DBS’s Social Enterprise Support Program, the overall scene is nowhere too impressive.
Why Do Investors Do Not Invest in Women-Owned Start-ups?
On the one hand, investors seek the highest returns on their investment. On the other, investors conveniently ignore the fact that women entrepreneurs make more money than their male counterparts. In 2018, the female-founded start-ups received only 2% of the USD 85 billion raised from venture capital funding in the country in the whole year. Another report indicated that in 2018, 93% of the European companies’ investment went only to start-ups that had an all-male founding team. So, what makes investors shy away from putting money in the hands of the female business owners?
- As per research, investors indulge in Unconscious Gender Bias throughout the process of investment. The study found out that the men receive a better response in contrast to the women, even if the sales pitch was precisely the same. The research also proved that the male dominance in the investment scene reduces the chances of women in attracting funds towards them.
- Another major problem has to do with women coming up with Female-Specific Products. Despite their mass appeal, such ideas get labeled as ‘niche’ products that cannot survive in the long run. These products, therefore, rarely get funded and scale to their maximum potential. Unfortunately, not just women-centric products, most products aimed at other diverse groups often fail to impress investors.
- Low Financial Literacy among women is another factor that contributes to little success with investors. Most women lack the knowledge of simple financial concepts like interest rates, accounts, and loans. In such a scenario, women aren’t able to present hard data to the investors and end up garnering no interest in their businesses. Financial literacy is also critical as it empowers the entrepreneur to diversify the risk portfolio, plan for the future, and make data-driven decisions. When an investor does not see a rock-solid business plan, he or she loses interest in the presentation.
- Women are also known to be Afraid of Failure. As a result, their risk appetite is low, and they do not like to promise the returns and time that they will need to scale the business and make money for the investors. Women are afraid to ask for ‘more’ money because they fear to fail to have the correct explanation when asked. Investors may also feel that women prioritize their family and emotional connections over the business. All such social factors lead to reduced chances of getting the investor’s money.
BUT! Investors Should Consider Women-Owned Business.
Here is Why!
Since investors are a believer in numbers and statistics, here are some statistical examples (and reasons) why women deserve an equal chance.
- As per the Kauffman Foundation, private technology companies run by women achieve up to 35% higher ROI as compared to those by men. When backed by investor’s money, the figure translates to a 12% increase in revenue.
- A study by BCG and Mass Challenge showed that women-owned businesses made double the money per dollar invested in a woman-owned business as compared to those earned by men. If the investors had invested equally in the women and men-owned enterprises, they would have made an additional 85 million USD.
- Another study by BCG claims that start-ups founded or co-founded by women founders make 10% more money than those by men founders over 5 years.
- Companies listed in the MSCI World Index showed a return on equity of 10.1% per annum from businesses lead by women and 7.4%, where women did not hold any dominant position.
- Diversification in the leadership roles has increased the companies’ innovation revenue by 19 points, but it has also led to lower turnover in companies where higher management includes women.
- At the beginning of 2018, approximately 12.3 million US businesses were owned by women. And, 1800 women-owned businesses opened every single day in the US.
Apart from promising numbers, women are also less likely to be motivated by money as compared to men. Motivation by cash can make a person take decisions that promise quick growth, but is not in the long-term favor of the organization. Since a mere 2% of the women start with entrepreneurship for money, investors can expect commitment and devotion from women founding members — the scientific studies too back the women in this aspect. As per study, people are more motivated to achieve their goals when they are motivated from within (like desire to succeed), rather than by an external source (like money and fame). Moreover, men are more likely to support and justify unethical decisions as compared to women. Research suggests that men adopt this trait from their desire to prove their ability to succeed better than women. For a business, this can end up in a fix.
The math is quite simple. The factors add up in favor of women-owned businesses. Moreover, with not many VCs aiming for a share in the women-owned start-ups, right now is the perfect time for them to jump on the wagon, and multiply the wealth.
How Can Investors Support Women Entrepreneurs?
One of the biggest problems that women in the business face are that of the capital. Better access to seed and Series A funding for women can improve financial outcomes. The decision-making authority and overall quality of the business idea can also improve when women have an adequate amount of capital at their disposal.
The low number of women VCs and mentors presents another opportunity for experienced investors to take up the role of grooming women entrepreneurs. As per Crunchbase, only 8% of women hold an influential position in VC firms. Such functions will help the investors create leaders that can turn into serial entrepreneurs and generate loads of money. It can also help the VCs create better products that translate into better sales and higher returns for the investor. Having a mentor will further boost the women entrepreneurs in gaining financial knowledge, its importance, and its effective presentation to attract more funds.
Investors in Singapore have an unfair advantage when they fund women-owned businesses as compared to anywhere else in the world. Women in Singapore are provided with a better infrastructure to pursue entrepreneurship. The Mastercard Index of Women Entrepreneurs ranks Singapore in second place, right after Taiwan for women entrepreneurs.
Women in Singapore have access to high-income society, innovations, financial services, and world-class infrastructure. With the help of adequate funding and mentorship, women in Singapore can achieve and contribute to country’s economy as much as men.
List of Investors Who Are Currently Supporting Women
A few VCs have realized the benefits of funding women-owned businesses. They have started to divide their portfolios between the two genders, and as per reports, they are making more money than before. Here is a list of investors who are actively supporting female entrepreneurs.
- Indie.vc is actively looking for women-owned start-ups that sound promising and need funds. The firm’s portfolio is made up of at least 50% of the businesses that are founded or co-founded by women.
- Golden Seeds is another firm that has focused on women-led start-ups for a long time.
- The Small Enterprise Assistance Funds (SEAF), along with the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) has formalized an agreement to leverage ESCAP’s funds for women entrepreneurs in Asia. This arrangement promises to provide USD 150 million in capital to female-led companies in Asia. The deal will also enable SEAF to provide technical assistance and grant support to female-owned enterprises.
- Netherland based Capital 4 Development Partners (C4D), in collaboration with the Australian Government’s Investing in Women initiative, is funding the women-led MSMEs. Investing in Women’s primary focus through this collaboration is to make hybrid investments in growth-stage MSMEs in Indonesia and the Philippines. The fund will spend at least 30% of the total invested money in women-owned businesses. As per the organizations, Southeast Asia can benefit highly from hybrid financing instruments.
- In Indonesia, Interstellar, a social entrepreneurship ecosystem, has taken the initiative to run an incubator program for early-stage female-led enterprises. The organization also conducts workshops for female entrepreneurs.
- Female Founders Fund in the USA provides early-stage funding to women-led start-ups. The organization has helped companies in various niches, including e-commerce, web-enabled services, and B2B and B2C marketplaces. The fund also provides opportunities for female entrepreneurs to network and share knowledge.
- Goldman Sachs invested USD 500 million in privately-owned and late-stage women-funded, women-owned companies. The company did so through the ‘Launch with GS’ program. Through this initiative, the company also provided an opportunity for entrepreneurs to network with fellow entrepreneurs, business leaders, and investors. Such communities, over time, help the women in securing a pipeline of investment opportunities.
- There is no specific grant for women entrepreneurs in Singapore due to the firm belief of the nation in decreasing the gender basis in business opportunities. However, the women entrepreneurs can opt for PSG or the Productivity Solutions Grant to boost SME’s access to government agency approved digital solutions. These tools can help any entrepreneur improve the efficiency of the business processes in various areas like client collaboration, payroll, financial management, and data analytics.
- Singapore Council of Women’s Organization (SCWO) works actively with initiatives aimed at reducing gender discrimination at the workplace and in business. One such initiative is BoardAgender that aims to promote more women in the board of members and senior leadership roles. SCWO also runs concepts like WE Club (Women Entrepreneurship Club) to provide mentorship to female business owners.
How to Achieve Inclusiveness
The foremost thing investors need to do is to actively employ a financial inclusion strategy for women-owned and women-centered businesses. It is no more a surprise that women enter commercial markets to create wealth and social change. Women tend to make decisions that are rational and ethical. Thus, investing in women-owned businesses increases the chances of earning money while improving society.
VC firms also need to employ more women as their partners to understand women-specific projects and products. Men fail to understand the practicality of ideas not geared towards them, whereas women can understand the need and use of certain products. Inclusion in the decision-making roles will enable the firms to capture more opportunities.
According to McKinsey Global Institute, increasing gender equality in Singapore’s workplace can enhance the GDP of the country by S$26 billion by 2025. Therefore, there is a need to quickly jump towards creating inclusive boards that work together to boost profitability and create more value. For Singapore, this is easier as compared to the rest of the world since the government and community provide infrastructure and grants as much to the women as to the men.
Finally, to unlock the potential of the female-led start-ups, there is a need to raise awareness and knowledge around the opportunities and resources available among the women entrepreneurs. Women need to understand what stops them from securing investment and work with mentors and communities to solve these problems.