Why are women entrepreneurs missing out on funding? : Reflections and considerations - Executive summary

Alessandro De Concini, Surya Fackelmann

• Publisher: European Investment Bank
• Year: 2020
• eBook ISBN: 9789286146466
• Topic: Business
• Subtopic: Finance
• Index: Business

The study assesses the access-to-risk-capital conditions for women-driven companies in Europe in comparison to the US and Israel to contextualise emergent cross-country and regional barriers and gaps. The study finds that while women-led companies still account for a small portion of deal flow and overall volume invested the rate of growth has increased across all the examined regions. Nevertheless, structural inequalities and persistent biases both on the supply of and demand for finance for women-driven companies still hinder the transition to a more balanced, more accessible and ultimately better functioning funding environment. For this reason the study puts forth and analyses a number of options and considerations – both financial and policy related – that could help accelerate this transition. As multiple evidence-based studies and data points show, women's economic empowerment makes not only ethical but also economic and business sense. InnovFin Advisory carried out the study with support of PitchBook, complementing market data with interviews of market practitioners of the European Venture community and other stakeholders.

Key findings

Promising trends…

Overall increase in VC funding for women-led companies in absolute and relative terms (volume and value); Europe is outperforming other regions

Women-led companies attract more investment at later stages

Women-led companies outperform the market in terms of median revenues at later stages

Enabling ecosystem contributes to higher investment in women-driven companies: spotlight on selected EU destinations

…but more needs to be done to overcome hurdles and biases

The European pool of women-led companies and female entrepreneurs is still limited

Persistent lack of women in investment decision-making roles, compounding the finance gap > investors typically invest in teams that look like them

Evidence of higher risk aversion of women-led companies

> Need actions by female entrepreneurs and the investor community to break the cycle and reduce the knowledge gap

Promising trends…

Women-led companies are raising record levels of finance, with Europe outperforming other regions

• In every region compared within this study, since approximately 2006 the rate of funding for women-led and women-founded companies has gradually improved. Moreover, the number of women involved as lead partners in venture funding has increased, albeit marginally, across every region except Israel.

• Comparing regions, proportionally the EU has seen slightly improved compound annual growth rates (CAGR) for venture investment in women-led companies relative to the US and Israel.

• Women-driven companies in the EU received a record €5 bn in VC funding in the first three quarters of 2018 (up from €1.1 bn in 2010). While this is a fraction of the €34.2 bn (€7.2 bn) that women-driven companies in the US received for the same period, the EU is catching up. Its growth rates in terms of deal value (27%) and deal volume (23%) exceed those of the US (20% and 16%, respectively) for 2006–2017.

• Nonetheless, the overall publicised disparity in funding between female and male founders still persists. In 2017, US-based start-ups founded exclusively by women entrepreneurs received roughly 2% of overall venture investment by value. This figure was 11% in the EU, whereas in Israel women-led companies secured 28.3% of overall VC invested that year, and 21.6% of all volume.

The chart below illustrates the increase in VC deal value to women-driven companies in the EU. While in 2010 23% of VC funding (of companies that disclosed at least one executive’s gender) went to companies with at least one female executive, in 2017 the percentage attained was 32%.

Figure 1. EU venture capital value, in € billions (2020-2018)

Aside from higher funding rates, EU women-led companies that are venture-backed enjoy higher exit rates in terms of deal value and volume as illustrated by the chart below. This implies there is potential for more capital reflows into the ecosystem.

Figure 2. EU VC-backed exit flow for companies with at least one female executive

Women-led companies attract more investment at later stages but the EU market is still maturing

• A key contributor to that rate of growth has been the unprecedented increase in late-stage investment, with private capital largely replacing public markets as more funds became available; this is largely thanks to institutional investors increasing relative allocations to private equity in general. Mature private companies tended to hire more women in general simply due to their size, which contributes to the increase in funding for businesses that tended to have women in executive roles, or as founders.

• The European venture community has invested in women-led companies at a greater rate on an annual basis compared to the region’s overall growth of capital invested. However, investment activity for women-led companies varies across financing stages. Since 2006, completed funding rounds for women-led companies in the EU at the early stage have accounted for the gre...

Table of contents

• Disclaimer
• Executive summary
• An overview of venture capital investment into women-led companies
• Key findings
• Recommendations and way forward
• Notes