Venture capitalists don’t like women more than they like profit

OpinionAlternative loansDigital bankSavings and investment

In her first article for AltFi, Hannah Duncan sheds light on the huge gap between men and women in venture capital funding.

Image source: Pexels/Andrea Piacquadio

That’s enough to make you want to throw your skinny latte against the wall. Preferably a freshly painted white. 40% of all early-stage fintechs are led by women. Yet investors – blinded by bias – are only willing to part with 4% of funds. It is not a coincidence. It’s a shame.

Prejudices are blinding logic

Almost half (40%) of start-ups are founded or co-founded by women. But when it comes to securing capital, these hopeful candidates face a deluge of additional hurdles that male-founded companies simply don’t have to face.

“A concrete example is that if a man arrives with a fancy and expensive coat, it is considered a sign of success. Whereas if a woman wears a chic and expensive coat, [investors] thinks she’s not good at managing money — or spending a lot,” Elin Helander, a psychologist and fintech leader, tells me. With other researchers, Helander has conducted extensive studies on gender bias in business.

“Our brain is designed to put everything into categories,” says Helander. “But these categories easily turn into prejudices. Just because you recognize them…doesn’t mean they’re going away”.

Throughout investment cycles, women are also frequently asked about their family life. A hurdle that most men do not have to cross. “Quite often, I was told that because I had four kids, I couldn’t invest,” reveals Gemma Young, founder of the award-winning Women of Fintech community and Chief Growth Officer at TechPassport. “But there are as many male parents as there are female parents.”

That women are asked negative questions during funding interviews is already well documented. While men are asked to project their vision, women are examined on how they will handle failure. Maddeningly, this is often cited as the reason why so many female-led fintechs are abandoned early on.

Of the 40% of start-ups led by women, just 15% get any funding. And even then they receive about a seventh of what men receive.

Moreover, the latest findings from Innovate Finance show that female-led fintechs only receive a microscopic 4% of fintech investment in the UK. It’s so wrong. This is blatant sexism. It is deeply unfair. And – foolishly – it also hurts investors themselves.

Businesses run by women are more profitable

Anne Boden is not an outlier. Far from there. A 2018 BCG study finds that for every dollar received in funding, the founders bring back 78 cents, while male founders bring in just 31 cents. Less than half. Businesses run by women are officially more profitable.

“Investors are missing out on making a lot of money,” exclaims Sofie Blakstad, founder of humanitarian blockchain, HiveOnline. Blakstad has worked for eight major banks, built five core banking systems, written two books, and founded one heck of a fintech. He’s also the person the UN calls on when they need a consultant. The fact that ELLE is struggling to get funding amazes me.

“One of the things I tell founders – if they’re women – is to find a business model that makes money. Because you’re not going to make any money, at least until what you have a lot of customers,” advises Blakstad… Something Adam Neumann, founder of WeWork – which cost investors $4.4 billion last year – had no problems with it.

Last week, venture capital firm Andreessen Horowitz invested $350 million in Neumann’s new company, Flow. To date, Flow has no products, no customers, and very little website. Yet, surprisingly, investors are rushing in with millions of dollars. “I’ve literally built entire core banking systems for a fraction of that kind of money,” Blakstad sighs.

The Blakstad battle highlights another glaring injustice within the fintech investment scene. “You get a lot of products designed for educated white men,” she points out. “Tech companies don’t support demographics outside of a very narrow group of customers. Many more impact companies are founded by women.” She’s right.

Almost every female founder I spoke to – more than ten – had sustainability embedded in the business model. Worldwide, research suggests women entrepreneurs are more engaged in green and social issues too. In a cost of living and climate crisis… can investors really afford to ignore these companies?

Investors need to do better

Even if rejected, female-led start-ups get a bad deal. Niki Issaia is the founder of Charles, a stealth tech company targeting sustainable fashion. As she begins her fundraising journey, she encourages investors to at least offer tangible, solid feedback. “I don’t want people to be lenient with me,” says Issaia. “I want them to be as aggressive, tough and critical of me as they would any founder.”

Taking the time to provide constructive criticism could do more than just help with the next round of interviews. This could cause investors to pause and wonder whether it is the startup business model or their own gender biased assessment that needs to be corrected. After all, our planet is suffocating. The wealth gap is widening. Investors need profits.

Like smashing a coffee cup against the wall, investors waste resources, destroy opportunities, and make a hell of a mess. For God’s sake. The solution is obvious. We urgently need investments in fintech led by women. It’s time to put an end to the outdated thinking and start opening the wallet… Your profit margins will thank you.

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