Fighting for Female Founders

Two strands of my life came together one day. The first one dates back to 1969, when I was seven years old. The second one happened 50 years later, in 2019. When they connected it led to a revelation: I discovered the purpose of my life.

It started with a simple question.

For most people alive at the time, it was a momentous occasion when Neil Armstrong and Buzz Aldrin landed on the Moon. I have vague memories of the Moon landings, but I remember very clearly telling my Mum when I was seven that I loved chocolate chip cookies and I wanted more. Her response? “That’s great, David. I’ll teach you how to bake chocolate chip cookies.” Baking led to cooking, and by the time I was 12, I was cooking dinner for the whole family (I’m the youngest of four children) at least once a week. When I met my first girlfriend at the age of 15, I remember telling my Mum that I thought I looked smarter wearing shirts that had been ironed. “You do, David” she said.? “I’ll teach you how to iron shirts.” Remember, this was the 1960s and 1970s when baking, cooking and ironing were considered “women’s jobs”. I’m grateful that my Mum did not subscribe to such constraints. Learning about gender equality as a child was powerful, and I’m grateful to my Mum for teaching this in a way that was gentle, clear and unequivocal.

A few years later, just before my 18th birthday I met the woman who became my wife. In the summer of 2024, we’ll have been married 41 years. Our two daughters are in their early thirties. Gender equality has been the norm for me throughout my adult life, just as my Mum taught: gently, clearly, unequivocally.

Fast forward to 2019 and that simple question. I’m ashamed to admit this, but when I was asked the question, not only did I not know the answer, I did not even know about the issue it raised. I’ve had a long career in finance, during which I have raised over ￡110 million in debt and equity funding. I had been speaking at an event about raising venture capital (VC) funding for SME businesses. Venture capitalists are professional investors who buy stakes in smaller, early-stage companies in return for cash. After my talk, a woman came up to me and asked: “Why does so little funding go to female founders?”

“I have no idea” I replied. “But I’ll find out.”

A week after appearing on that stage, I was in a meeting with the Chief Executive of the British Business Bank. She and I had met at a networking event and this was a follow up to get to know each other better. We had a pleasant conversation, and towards the end I decided to ask if she knew anything about the lack of VC funding to female founders. With a wry smile, she reached into a drawer in her desk and pulled out UK VC and Female Founders, a full-scale research report which the UK government had commissioned the bank to prepare.

Researchers looked at every VC deal in the UK in 2017 and what they found was stark. Out of all the money invested by VC firms that year, the amount going to all-female teams was less than 1%. Those teams submitted 5% of all pitchdecks but got less than 1% of the money. That’s a 1 in 5 success rate. Just 10% went to mixed-gender teams, who had submitted 20% of pitchdecks. A little better, but still only a 1 in 2 success rate. All-male teams received 89% of funding from 75% of pitchdecks. That’s 1.2 to 1. I was shocked by the unfairness and clear gender bias of VC funding.

That was the moment when two strands of my life collided, and it was powerful. That simple question proved to be life changing, and the result of it was clear: the purpose of my life is to be a champion of female founders.

What I discovered along the way

In the last few years there has been a great deal of noise about the lack of venture capital funding going to female founders. Unfortunately, that noise has not led to sustainable change. In 2019, the British Business Bank published UK VC and Female Founders and the UK Government published The Alison Rose Review of Female Entrepreneurship. Both publications made clear the challenge of investing in female founders and set out the benefits of doing so. In 2020, the UK Treasury developed the “Investing in Women Code” which now boasts more than 200 signatories. Sadly, more than half of the members of the British Private Equity and Venture Capital Association have chosen not to sign the Code. They continue to ignore female founders.

We need to go back in time to understand the full scope of this problem.

In 2008, Pitchbook started tracking venture capital funding by gender of the founders. In that year, all-female founding teams submitted 2.7% of total pitchdecks to venture capital firms in the UK & Europe. They received 2.6% of total funding. The share of total funding was 2.0% in 2009 and 2.4% in 2010. Since then, it has never broken above 2% and has at times been less than 1%. Sixteen years later, in 2024, all-female founding teams submitted 4.5% of total pitchdecks (an uplift of 67% from 2008) to venture capital firms. They received 1.8% of total funding (a drop of 31%). Something is wrong here because the numbers are going the wrong way. More pitchdecks are leading to less funding.

The situation in America is not much better. Across the same period from 2008-24, all-female founding teams have never received more than 3% of total funding.

There is overwhelming evidence to show that entrepreneurial teams with female founders and co-founders outperform male only teams. Here are two such sources:

1. Boston Consulting Group and MassChallenge conducted a review of over 1,500 businesses that had raised funding over a 5-year period. They found that founding teams with at least one woman generated 2.5 times as much revenue per dollar invested as all-male teams. 2.5 times as much is huge.

2. The Alison Rose Review found that if women were to start businesses and receive funding at the same level as men, it would add ￡250 billion to the UK economy. That’s 12.4% of the UK’s pre-pandemic GBP.

Let’s extrapolate that number from the Alison Rose Review. I know from my research that the gender funding gap is broadly consistent in the USA, the UK and Europe. In other parts of the world, it’s even bigger. Let’s take the 12.4% figure and adjust it down to 10% to keep the maths simple.

Global GDP in 2023 was $104 trillion according to statista.com. Applying 10% to that would imply incremental GDP of $10.4 trillion. Ten trillion four hundred billion dollars. That’s a really big number.

Let’s write it out: $10,400,000,000,000.

That is 3? times the market capitalisation of Apple Inc., the largest publicly listed company in the world, based on current NASDAQ data. It is double the value of all the unicorns in the world (private companies with a valuation of more than $1 billion) based on Crunchbase data. If it were a country, it would be the third largest in the world in terms of GDP, behind the USA and China, bigger than Japan, Germany and all the rest.

Investing in women makes sense. The returns are strong and the benefit to the wider economy is clear. So why do venture capital firms continue to ignore female founders?

Based on my research there are three main drivers:

1. Inherent gender bias

2. The investment management industry continues to be male dominated

3. Women are more conservative than men in their financial projections

Let’s explore each of these.

First up, inherent gender bias. There is so much evidence supporting the fact that gender bias is alive and well. The situation is better than it was 50 years ago when I was growing up, but the world is still skewed against women. The Global Gender Gap Report is published annually by the World Economic Forum and looks at gender parity on four criteria: economic participation and opportunity, educational attainment, health and survival, and political empowerment. According to the latest report, published in June 2023, the global average index is 0.684, where 1 is parity. At the current rate of progress, it will take 131 years to achieve parity worldwide.

Next, the investment management industry continues to be male dominated. It is an industry often referred to as being “pale, male and stale”. Several years ago, Morningstar did a detailed analysis of all the open-ended investment funds that were listed in the UK. Of just under 1,500 funds, they found that 108 of them were run by men named David. As a man named David, at first I thought that was cool. But wait. It also found that only 105 funds were run by women. More funds run by men named David than by all women?

Dr Dana Kanze, an Assistant Professor at London Business School completed her PhD thesis at Columbia University in New York. She analysed every pitch from the TechCrunch Startup Battle in New York City between 2010-17. She found no material differences between the way male and female entrepreneurs pitched their businesses, but she found a huge disparity in the Q&A sessions conducted by investors: 67% of questions asked of male entrepreneurs were so-called promotion questions – eg how are you going to double your market share? – and 66% of questions asked of female entrepreneurs were prevention questions – eg how are you going to protect the customers you have from the competition? Drilling further into the details, Dr Kanze found that both male and female investors showed the same bias in their questions. A worrying statistic but evidence that to succeed in a male dominated industry the women had had to adapt.

Finally, women are more conservative than men in their financial projections. There is little published research to evidence this but based on dozens of interviews I have conducted with female founders in many countries around the world, I believe this to be the case. This plays against female founders in pitches to venture capital firms, because the VC industry is entirely focused on finding the next unicorn. By being more conservative, female founders are doing themselves a disservice.

What can female founders do to address this? Gender bias is going to take generational change to address. We are moving in the right direction but as the World Economic Forum report shows, it is going to be a long time before we reach parity. The number of women in senior roles in the investment management industry is improving, but again, it will require generational change before we come close to parity. Finally, I encourage women to be more bullish in their forecasts. It may seem uncomfortable to some, but that is the way the venture capital game is played. Be bold with your forecasts.

It may be very difficult, but not impossible. There are many female founders who have traversed the uneven playing field and secured funding to grow their businesses. In my book, Funded Female Founders, I set out the stories of 7 women from 7 industries in 4 countries who have successfully raised money. They have kindly shared their stories with me and set out tips for others to learn from their success. It isn’t easy but it can be done.

Coming back to the Pitchbook statistics, there has been an interesting trend in the development of mixed gender teams. In 2008, mixed gender teams in the UK and Europe submitted 7.5% of pitchdecks and received 5.4% of total funding. By 2024 that had more than doubled to 19.6% of pitchdecks and trebled to 16.0% of total funding. I don’t like to say it, but having a male co-founder will greatly improve the chances of female founders securing funding. It’s not right and it shouldn’t be that way, but the numbers don’t lie.

Is the venture capital industry broken? Based on the continued strong performance as an asset class, it’s hard to say that the industry is broken. As a whole, VC firms generate high returns to their investors and have done so consistently over many years. So, one cannot say the industry is broken. However, there is no question that it is only serving half of the human population and it is missing a significant trick in terms of high returns as evidenced by the Boston Consulting Group research and the Alison Rose Review. To address this, I believe we need to develop an alternative to the venture capital industry that is focused on investing in women. I have spent the last two years trying to establish such a fund, but to date I have been unsuccessful in securing investment from the institutions and limited partners who underpin the venture capital world.

I shall continue undaunted, because solving this problem has become my life’s purpose. There has to be a better way. Not just from a social perspective, but from an economic one as well."

As always, looking forward to reading your thoughts and questions in the comments.?

With love and gratitude,

David B Horne

Founder, Funding Focus