Click here to choose your background settings. [ random ]

March 8, 2021

10 Years of Innovation to Reduce the Gender Financing Gap

We love the spotlight that International Women’s Day puts on women around the globe who are breaking barriers, creating groundbreaking new innovations and shaping the future. And for us at Village Capital, we also think this day warrants reflecting once again on the fundamental math problem that exists in early stage investing.

The World Bank has found that women own about 30% of businesses around the world. But far less than 30% of early stage startup funding flows to women-owned businesses. In fact, the proportion of VC dollars going to female-only-led startups is less than 3%. 

Plenty of ink has been spilled about this gender financing gap. But solutions are harder to come by. That’s why today I’d like to highlight four systemic innovations that Village Capital has tested in the past decade to reduce the gender financing gap that we believe can offer solutions at scale.

Vox once described peer-selected investment - our democratic process for choosing investments at Village Capital - as a vast “social science experiment”. They weren’t wrong. For the past ten years, our team has been running several concurrent social science experiments around one theme: how to make the process for startup funding more equitable. While women are not the only under-represented founders who benefit from these four innovations, each of these ideas is in some way meant to reduce the gender financing gap.

1. Peer-Selected Investment


In the first few years of our peer-selected investment experiment, it wasn’t clear if the model would work. We ran into challenges, like founders gaming the system, and had to work out kinks along the way.

But ten years later, we’ve run the model more than 70 times, and facilitated more than 100 seed-stage investments chosen entirely by entrepreneurs. Our VilCap Investments portfolio has seen fourteen exits, as well as a portfolio where 46% of companies are founded or co-founded by women.

And in 2019 researchers confirmed our experiment’s initial thesis. A team at Emory University found that the peer review model mitigates bias against women - and that it serves as an effective method for predicting future commercial success.

We think this is an idea that should grow beyond just Village Capital. Over the past few years we have started licensing the peer-selected investment model to dozens of incubators, accelerators and tech hubs around the world, often at no cost. We’ve also seen other funders adopt the model on their own, like Year Here in the UK. We’re excited to see the experiment grow.

2. Abaca


On a practical level, Abaca gives entrepreneurs the chance to assess their business from the lens of an investor. This makes the investing process a lot more transparent - they can speak the investor’s language and anticipate questions, saving time and frustration on both sides.

But just as importantly, Abaca also serves as a tool to mitigate implicit bias at the top of the VC funnel. One recent study found that men and women are asked entirely different questions by investors. While investors asked men generally positive questions about “opportunity”, they asked women generally negative questions about “risk”.

But when an investor looks at an Abaca scorecard, they don’t immediately see the gender of the founder. Instead, they see important information about the company’s strengths and weaknesses. It’s one more way to make sure the investor is focused on what matters. (Learn more about Abaca)

3. Alternative Pathways for Growth


“Startups, like the male anatomy, are designed for liquidity events.” That’s the first line in Sex and Startups, a manifesto written by the four female founders of Zebras Unite, a challenge to  the culture of hyperscale pervading entrepreneurship today.

This is one of the lesser-discussed consequences of the fact that most founders and funders are male: entrepreneurship has a distinctly male sensibility that plays out in the endless quest for growth. Seed rounds keep getting bigger each year, and meanwhile companies that have community-sized visions get left in the dust.

Not long ago the Zebras Unite founders created a coop to offer a vision for a different growth pathway. Built by founders and for founders, the collective promotes alternative financing models that don’t encourage startups to get caught on the funding treadmill.

We’re proud to be the fiscal sponsor for the Zebras Unite movement. We’ve also contributed to the conversation about alternative growth options, with our report Capital Evolving. We’d encourage anyone - male and female alike - to reach out if you’d like to learn more.

4. Equipping Accelerators


Are accelerators accelerating the gender financing gap?

Last year our team partnered with a group of researchers - led by the International Finance Corporation, Women’s Entrepreneurship Finance Initiative and World Bank Africa Gender Innovation Lab - on a project to explore that question.

The group expected to find that accelerators play a role in helping female founders raise funding. But after analyzing a global data set of 2,000 founders, we found surprising results: accelerators might actually widen the gender financing gap. Men get significantly more of an equity boost one year after leaving a program, making the gap even wider.

The results suggest that accelerator leaders have a role to play in reducing investor bias. As trusted intermediaries, they can help minimize the perception of risk that seems to hang heavy over female-led start-ups. We’ll release more later this year, but I recently wrote about a few different tools and strategies around influencing investor behavior.

...

The gender financing gap is looking pretty bad right now. According to Pitchbook, last summer venture funding for female founders hit its lowest level in three years. The world in 2021 is in need of inclusive ways to support innovation now more than ever - and we know from study after study that investing in diverse teams - at the intersection of gender, race and other factors, has a huge upside opportunity. Armed with solutions like the approaches we’ve been building at Village Capital, we can deliver meaningful progress.  

Related Posts