They say good ideas will get investment … but maybe that’s only true if the founder is a man.
Months of data work by the Tech Nation Insights team culminated in the annual state of the nation of UK tech – the Tech Nation Report 2018. In my opinion, the 2018 report is the most comprehensive and rigorous analysis of a tech ecosystem globally. Since publication, I’ve been narrowing my focus and delving into some of the UK tech investment information from the last ten years – all 13,000 deals. I’ve been scraping the gender information of company founders from each deal.
Unsurprisingly, investment in tech companies founded by women is consistently lower than money injected into firms started by men. In fact, the median investment made in women-founded tech firms was around £200k lower than funds raised by male counterparts. In one year, this was as high as £440k. It’s important to note that this is the median average amount raised – it isn’t influenced by a few huge outliers.
What is clear is that the gap is uniform. There’s a consistent differential in capital raised. There hasn’t been a single year in the past decade when the average deal for women was higher than it was for men. Even more discouraging is the fact that the gap grew by nearly 100% in 2017.
So what’s different?
It’s well documented that women consistently close fewer deals than men – see here, here and here. The UK Business Angels Association (UKBAA) recently published research highlighting the extent of this problem. They also found that women were far more likely to financially back other women – a crucial finding in the male-dominated angel investment market. Jenny Tooth, Chief Executive at UKBAA elaborates:
Currently, only about 15% of the total angel population are women. Our research has shown that women investors have 30-50% of their portfolio of investments in women founders. At UKBAA we are on an active campaign to encourage more women to engage in angel investing, but our research has shown that many of them are unaware of the opportunity to back entrepreneurs or how to go about it. So we need to raise more awareness and provide more access to knowledge and opportunity for women to engage with angel investing.
So tech’s diversity gap is an issue not only in the business angel population but also with entrepreneurs.
Call me old-fashioned, but I’m a big believer that deal size is just as important as quantity. So often we focus on deal count and miss the nuances in deal size. This is the first population analysis of tech investments size that I’ve ever seen – hence why I was so eager to produce it.
One of the things that has depressed me the most is the increase in the investment gap during the last 12 months, despite gender equality in tech rising high on the political agenda. Shortly after joining Tech North last year, James Darmore published his manifesto for men at Google. In tech, this was on of a number of stories that seemingly re-energised the gender debate. Add in the ‘me too’ movement, the levels of political action around gender in the workplace were unprecedented in the past few months.
Despite increasing the rhetoric around the reduction of gender inequality, the gap between funding achieved by men and women in tech nearly doubled in the past 12 months. 2018 has already been described as the ‘year of the woman’ by the likes of CNN and Huffington Post. There’s a massive drive for pay equality, particularly now companies in the UK are required to publish median salaries. But where is the investment story?
I would argue the investment deal gap is just as important as the pay gap. It sets a precedent that the most important and influential people in tech are still being treated differently simply because of their gender. It condones the under funding of business leaders who create jobs for the UK economy, and drive UK GVA.
Some will argue that these figures are coincidental, and gender does not necessarily play a part. I would refute – this is an analysis of almost all (~95%) of investments from the last ten years sourced from the Beauhurst and Pitchbook investment database platforms. There is not sampling error, and it is consistent for 10 years.
At the coalface
Certainly one of the best things to come out of the Tech Nation report development process is that it shows we have the best gender diversity data ever seen. This is such a brilliant asset, and is imperative if we are going to make change.
That being said, I’m not really in the market for writing a data doom and gloom piece, and wanted to get the conversation going establish what’s being done to alleviate this issue. Three of the most prominent investment figures in UK tech were kind enough to chat to me. Firstly, UKBAA Chief Executive Jenny Tooth describes her experience of women seeking investment:
We are genuinely not seeing enough women entrepreneurs coming forward. I meet so many fantastic innovating women tech entrepreneurs who seem to be less well informed about how to access investment, and how to negotiate with investors compared to their male counterparts. This may affect the amount of risk capital they attract – so we need to help women gain confidence in approaching investors and how to negotiate.
Research from the Women’s Business Council has suggested that the UK economy is missing out on more than 1.2m new enterprises due to the untapped potential of women. We also know that representation of women at the C-suite is just 4% – information from the recent scale-up report by the Scale-Up Institute and Beauhurst.
Clearly this is a huge issue, but one which Suranga is heavily invested in:
The non-profit organisation I advise, Diversity VC, which was founded by a group of young venture capitalists, carried out the first ever study on the number of women in VC, in partnership with the BVCA in May 2017. This study which showed that just 13% of partners at VC firms were women and 48% of UK funds had no women in their investment teams. Similarly sobering data from Craft.co in Atomico’s State of European Tech Report 2017, showed that 9% of CXO positions at European startups are filled by women, and just 2% of CTOs and 6% of CEOs.
Awareness has definitely increased significantly over the past 12-18 months, which is good, accelerated by the work of pioneers in this space such as AllBright. However, as the data shows, we clearly have a LONG way to go to convert awareness into actions that dramatically narrow the gap.
So in sum – a glimmer of light can be seen the end of a long long path to funding equality.
So why are so few women founders receiving investment? A couple of potential causes are often mooted – Jenny Tooth thinks there is an entrenched lack of knowledge amongst some female founders:
Business angels, both male and female, report that many women founders who do come forward to seek angel investment do not ask for as much money as their male counterparts. They tend to be reluctant to ask for all the money they need to grow their business to the next level.
Lou Cordwell is also of the opinion that women founders are lacking from tech sector deal flow in the VC universe:
We need to get more women in the UK starting and growing businesses. Evidence tells us that in order to achieve this there are three main barriers to overcome – lack of confidence (and perceived lack of skills) amongst female founders, poor network and connectivity amongst female founders, and finally access to capital. One of things we can do to help dial up investor interest, of course, is to help spread the word that on average a female founded business performs 35% better than that of a male founder!
We don’t have enough women starting the founder journey and those that do are often uncertain / nervous about accessing capital to support growth (they don’t always know where or how and very often meet an unreceptive audience when they get there!).
There are some really interesting initiatives designed to alleviate this problem, as well observations from industry. Check out the great work being done at UKBAA, Balderton and AllBright to try and counter this issue.
Data was sourced from Pitchbook, Beauhurst and other manual web scraping tools. It is intended to offer a guide on trends in the digital technology sector, and is for general information only. This may not include every digital technology deal in the region during the period.
Data was cleansed to remove any companies not classed by Tech Nation as a digital tech company. The data includes all VC stages, private equity growth/expansion, and ‘corporate’ deals. It does not include M&A deals, IPOs, liquidity or buyout deals.
This report is published for general information only. Although high standards have been used in the data sourcing, analysis, views and projections presented in this report, no responsibility or liability can be accepted by Tech Nation for any loss or damage resultant from any use of, reliance on or reference to the content of this document.
Past figures may fluctuate as further information is published and sourced.
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