Springboard to Funding #10 - Could Do Better

Added Tuesday, April 17 2018

The latest incarnation of my career has seen me largely working with London Venture Capital companies for nearly a year and I’ve noticed that I’m mostly dealing with men.

So I decided to investigate the available research on the VC gender gap and it doesn’t make pretty reading.

A 2017 report jointly commissioned by the British Venture Capital Association shows that only 13% of decision makers (partners or equivalent) in UK venture capital are women. This ‘improves’ to 29% if you look at junior roles but still compares badly with the overall female UK labour force of 47%.

And a staggering 48% of the 160 investment teams polled have no women at all.

The only good thing is that we compare favourably with the US who only managed 11% VC decision makers. Cold comfort indeed.

Venture Capital is a long established sector and clearly traditional in the worst definition of the term. However what about the newer form of investing, crowdfunding?

Well, the Women Unbound Report from PwC looked into this and found women on average outperform men in raising funding. It was a comprehensive piece of working looking at 450,000 funding campaigns. And it showed that women were 32% more successful at reaching their funding targets than start-ups led by men.

And this wasn’t just in the US and the UK which currently dominate in terms of the number of crowdfunding campaigns. Growing markets such as China, India, Brazil, Mexico and Russia also showed the men to be less successful by between 3-10%.
Success rates are one thing, but actually number of fundings is another. 89pc of campaigns were led by men, raising more than $1m, compared with women who accounted for just 11pc.

The third piece of research I found was by Dana Olsen, a financial writer at PitchBook.

She showed that in 2017, just 2.2% of all venture capital in the US went to companies founded solely by women. The story is about the same when measured by deal count: Roughly 4.4% of VC transactions in the US last year were for female-founded companies. 
And she confirmed the same story about the VC decision makers showing that just 11.3% of partners at VC firms in the US are female.

Determined to seek out positive female evidence, she looked to see if female-founded companies showed better valuations over the last decade. They turned out to be slightly lower compared to the male-led companies. 

Perhaps the exit rate might show a difference? However a higher percentage of VC-backed male-founded companies in every single industry received follow-on funding than female-founded companies. Her PitchBook data showed companies with all male founders received funding after their first round nearly 35% of the time. For companies with all female founders, that number was less than 2%.

There's a similar trend for exits. 11% of male-founded startups were acquired while less than 0.5% of female-founded startups reach the same milestone. 
Now this stuff matters. In 2016 over $127 billion was invested worldwide by VCs. And 60% of the most valuable companies have taken VC funding on their journey.

Most people in business are aware that greater diversity amongst decision makers results in better decisions. For example a 2015 McKinsey report found that companies managed by a mixture of male and females outperform their less diversified rivals by 15%.

The British Venture Capital Association are to be commended on their research. And they came out with a number of well meaning recommendations around promotion and partnering to change the situation. 

Here in NI, a quick back of an envelope calculation suggests that 25% of our VC decision makers are female. In other words twice as diverse as the UK average.

And it’s pleasing to see this recognised recently with the award of an MBE to Jayne Brady of Kernel Capital.
But we’ve still got a long way to go.

I’ve probably buried you in a sea of statistics. So just to remind you, here’s the one to remember – only 13% of decision makers in UK venture capital are women. 

We have got to do better.

Alan Watts is the Director of Capital Match at Catalyst Inc (formerly the NI Science Park).
For more information about Capital Match or to contact Alan, go to capitalmatch.catalyst-inc.org