Fundraising
Why the Funding Gap for Female Founders Is a Bad Bet for Investors
David Horne explains how one question after a talk led him to the numbers behind the gender gap in venture capital, and why closing it is a financial case rather than a favour.
DAVID HORNE FUNDING FOCUS INTERVIEW
Video from Lucy McCarraher MBE.
Generated from the canonical interview transcript and validated against source data by Guests on Air.
Why do female founders receive so little venture capital funding?
Female founders receive a tiny share of venture capital because of systemic bias in how investors judge who looks credible, not because their businesses perform worse. UK research found all female teams submitted five percent of pitch decks yet won under one percent of funding, while other research shows female founded firms return more revenue per dollar invested.
In the spring of 2019, David Horne was speaking to small business owners at an event in Reading about how to raise capital. Afterwards a woman in the audience asked him why so little venture capital went to female entrepreneurs. He admitted he had no idea, promised to find out, and what he found was, in his words, rather shocking.
Horne works with entrepreneurs who want to scale up through his consultancy, Add Then Multiply, and its FACE methodology, which helps businesses fund, acquire, consolidate and exit. The question in Reading pulled him into a second line of work. He set up Funding Focus, a social enterprise aimed at levelling the uneven playing field that female and diverse founders face when raising capital.
Speaking with Lucy McCarraher in November 2020, ahead of the second Funding Focus conference, he set out what the data shows, why he sees the problem as systemic rather than personal, and why he believes backing female founders is simply the better investment decision for anyone putting money to work.
Key takeaways
- In UK venture deals from 2017, all female founding teams received less than a penny of every pound invested.
- All female teams submitted five percent of pitch decks but won less than one percent of the funding.
- Horne sees the gap as systemic: it also hits founders from diverse and Black backgrounds, and reaches far beyond the UK.
- Research he cites found female founded firms generated 2.5 times as much revenue per dollar invested.
1. What the British Business Bank numbers show
Horne's first real lead came from a networking follow up with the chief executive of the British Business Bank. When he raised the question, she told him the bank had already published a full research report. It looked at every venture capital deal in the UK in 2017 and tracked where the money went by the gender of the founding team.
The result was stark. Out of every pound invested, less than a penny went to all female founding teams. Mixed gender teams received around ten pence, and all male teams took more than 89 pence. Horne's reaction was simple. He looked at the figures, decided that was wrong, and started digging much further into the research behind them.
The detail made it worse. All female teams submitted five percent of the pitch decks and received less than one percent of the funding. Mixed teams submitted 20 percent and got ten percent. All male teams submitted 75 percent of the decks and walked away with 89 percent. The gap does not come from who is asking for money; it shows up in who gets a yes.
2. A systemic problem, not a personal one
Asked whether this comes down to unconscious bias, Horne said he hopes that is the main cause rather than anything deliberate, but he points to how widespread the pattern is. A Morningstar study of just under 1,500 listed open ended investment companies in the UK found 108 funds run by men named David, and only 105 run by all women teams.
His research then widened the lens. At the first Funding Focus event, held at the London Stock Exchange in November 2019, men from diverse backgrounds told him they faced exactly the same barriers. A later British Business Bank report on funding for Black owned businesses showed the same statistics, confirming that this is not only a question of women versus men.
Nor is it only a UK problem. Comments on the event's social media posts came from people in around ten countries, and everywhere Horne looked he found the same issue. That is why the 2020 conference moved online with speakers from the USA, the UK, Switzerland, Malta and Singapore, and attendees signing up from San Francisco to Jakarta and Cape Town.
3. Why backing female founders is a financial decision
Horne is clear that the case for change is not charity. He cited a Boston Consulting Group study of more than 400 venture capital backed deals in the United States, which found that female founded firms generated 2.5 times as much revenue per dollar invested. For any investor chasing returns, that raises an obvious question about why the capital is not flowing there.
The workarounds founders use today show the cost of the status quo. Horne described one conference speaker, the founder of Globe Chain, who faced investor questions that would have been grounds for a tribunal in a job interview. She secured her funding by almost taking on a male persona, which may work in the short term, but over the medium to longer term, Horne argues, that has to change.
Change will take time because the problem is so systemic, so Funding Focus pairs awareness with education and puts founders on stage beside the investors who backed them, from a Singapore firm investing only in female led businesses to a Malta based fund split roughly evenly by gender. For the practical side of raising debt and equity, Horne later set out proven strategies in his book Funded Female Founders.
