Mind the gender funding gap: Equity crowdfunding platforms could boost investment in female-led businesses

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Data shows that the fund type most likely to back female-led businesses is equity crowdfunding (Source: Getty)

Today, in the year 2017, women are a long way from being represented fairly against men when it comes to business.

Last month’s exposé on the huge pay gap between men and women at the BBC was bleak confirmation of a very real situation. After all, if the nation’s stalwart public service broadcaster is so far away from treating its staff as equals, regardless of gender, what does this ultimately say about the country in which we operate?

Read more: The City must find a way to back more women with venture capital funding

Working with growth companies, I do see a more positive picture. There is a surge of female entrepreneurs in the UK – in fact, a report by Aston University in Birmingham showed that the proportion of women going into business rose by 45 per cent in the three-year period between 2013 and 2016, compared with 2003 to 2006. The share of men going into business increased by 27 per cent during the same period.

So more women are starting businesses, but what about that age-old challenge of growing those companies through funding? The truth is, the traditional venture capital (VC) industry is predominantly made up of white males – and its investments reflect that demographic.

According to research by non-profit organisation, Diversity VC, only one in 10 decision-makers at UK venture capital firms is female and just 27 per cent of employees are female.

No wonder then that, when it comes to funding businesses backed by women, there’s a lack of interest from the VC community. The changes are happening on the platforms. Small changes, but they’re happening.

Equity crowdfunding leads the way

Data from Beauhurst shows that the fund type most likely to back women is equity crowdfunding. One-third (32.8 per cent) of all deals into female-founded companies came from crowdfunding.

Read more: Equity crowdfunding's leading founders predict what's in store for the sector in 2017

The total number of deals into companies with at least one female founder was 198, or 14.97 per cent of all deals.

Meanwhile 18.95 per cent of all crowdfunded deals went into companies with at least one female founder.

This doesn't suggest women are overrepresented, of course, because 81.05 per cent of crowdfunded deals are still going to male-founded companies. But it does suggest that women have a less difficult time securing investment from equity crowdfunding than from other sources.

That said, in 2016 women received just 7.9 per cent of the total cash invested via crowdfunding. The average deal amount into a female-founded business from crowdfunders was £188,592, whereas the average amount for all-male- founded companies was £517,246.

But it’s when we compare it to the private equity (PE) and VC figures that it becomes striking.

The weaknesses of traditional funding

While 10.1 per cent of all PE and VC deals went into female-founded companies, only 1.75 per cent of the amount invested did. That means that companies with male-only founders are taking 98 per cent of the capital available from PE and VC sources – despite making up 89.9 per cent of the deals.

From this, one could say quite confidently that crowdfunding is emerging as the more egalitarian of the two major funding types. But with barely eight per cent of cash going to female-founded companies, it still has a long way to go.

As I look at the SyndicateRoom platform at the time of writing, three out of the seven deals live on the platform are headed by women. We recently celebrated our first exit, as Oval Medical Technologies was bought by global pharmaceutical device manufacturer SMC Ltd with chief executive Barbara Lead at the helm. So yes, there’s a way to go, but these are positive and important steps towards a fairer investment culture.

While I anticipate some time before the gender funding gap fully closes, platforms are enabling this shift by levelling the playing field around investments into female-founded companies. And by the way, massive kudos to BBC for giving the first step towards equal pay and eventually catch up – for growth businesses, the tide is already starting to turn.

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City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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