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Why is venture capital still ignoring women? The case for investing is clear.

Pioneers Post | Tove Ahlström and Sofia Breitholtz  | Aug 26, 2021

case for investing in women is clear - Why is venture capital still ignoring women?  The case for investing is clear.

It could take an astonishing 200 years to close the global gender gap, if we continue on our current path.

Yet the evidence is clear: backing female-led businesses is a ticket to prosperity for everyone. As the world seeks solutions for post-pandemic recovery, it’s time for investors to put their money where their mouths are.

A disheartening 3% of global venture capital went to female founders in 2019, and the figures for women from minority groups are even more dismaying, a 2020 report by Crunchbase shows. During the Covid-19 pandemic, the outlook worsened still, with venture funding to female-founded enterprises plummeting 27% worldwide.

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Global challenges, like the Covid-19 pandemic or the climate crisis, have more direct consequences for vulnerable groups in society, who are already subject to uneven distribution of resources, oppression and marginalisation. As the world turns to solutions and strategies for recovery in a post-pandemic reality, investors and politicians need to put their money where their mouths are – and they might benefit, too.

Everyone’s ticket to prosperity

Women are powerful catalysts for development. Data shows that investing in their economic empowerment sets a direct path towards poverty eradication in all groups, inclusive economic growth as well as sustainability and resilience. The recent discussion paper from the European Commission once again shows a correlation between gender equity and GDP growth, productivity and rising wages.

The flow of investment capital needs to be diversified, less focused on the short-term, and more focused on the long-term, with innovations promoting the necessary combination of sustainability and profitability.

The same source also shows that women are associated with long-term, patient capital and more social impact investment. Building capacity for women's economic independence is crucial in the Covid-19 response and also sets an effective path for the achievement of the UN’s Sustainable Development Goals.

A shared problem with a viable solution

One major obstacle for women in both starting enterprises, and taking them to scale, is the lack of access to capital. When female-founded companies get funding, the amount of money is less than male teams receive. A report from Unconventional Capital on Nordic startup funding shows that all-women teams only get between one-third and two-thirds of the funding compared to men. In the US, research shows that women start businesses with roughly half the amount of capital compared to men.

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The story is much the same across the globe, but – unsurprisingly – even more difficult in emerging economies. Not only does the lack of investment and capital reinforce structural inequalities, it also hampers the growth of female-led businesses. What the world needs is specific programmes that build female capacity, and that stimulate investment ecosystems to become more inclusive.

Don’t look away, investors and politicians

Investors – who tend to proudly describe their decision-making as rational and number-driven – would benefit from looking their (often well-meaning) biases in the eye and actually focusing on data. A now well-known 2018 study by BCG shows that women-founded businesses outperform and deliver higher revenue than male-run ones, making them a rational investment.

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