Is gender a barrier to entrepreneurship?

Tuesday 8th June 2021

Is gender a barrier to growing a business and attracting investment? Amy Pierechod, corporate solicitor at Gordons, explores the gender gap in entrepreneurship – and why females are missing out on investment opportunities.

The UK is often labelled the start up capital of the world, with an army of entrepreneurial men and women looking to grow their fledgling businesses. Over 1,100 new businesses are set up in the UK each day, which attracts more venture capital than any other European country and offers a wealth of opportunities for innovation and development.

Education, training and a high level of acceptance of women in business also help to contribute to the UK’s high scores in international indexes of female entrepreneurship, suggesting a fantastic platform for women to start and grow businesses.

Look a little deeper, however, and there is a more concerning narrative.

The Alison Rose Review of Female Entrepreneurship, commissioned by HM Treasury in 2019, highlights some damning statistics. Only one in three UK entrepreneurs is female and women-owned enterprises represent less than 25% of businesses in the UK’s five most productive sectors. Female-owned businesses also don’t tend to scale up as much as male-owned. In fact, up to £250 billion of new value could be added to the UK economy if women started and scaled new businesses at the same rate as UK men.

This gender gap in UK start ups goes some way to demonstrate the challenges that women still face in starting a business, despite evidence that companies with greater gender diversity on their executive teams perform better on profitability and value.

Investment (in)opportunities

If females have the appetite and the entrepreneurial qualities, why are male-run SMEs five times more likely to scale up to £1million turnover than female-run SMEs?

Part of the issue is access to funding, particularly in early growth stages. The Rose Review states that only 13% of senior decision-makers on UK investment teams are female, and almost half (48%) of investment teams have no women at all. At the end of the day funding decisions are made by human beings and we are all more likely to trust what looks familiar to us and what we know. This lack of female representation may explain part of the reason why less than 1% of UK venture funding goes to all-female teams and just 4% of deals.

It is also a common complaint of female entrepreneurs that they feel to have been judged less competent than their male peers.

One study of venture capitalists and entrepreneurs at a start up funding event in New York shows that female entrepreneurs receive around 2% of all venture funding, despite owning 38% of American businesses. The main reason, according to this particular qualitative study, is that women get asked different questions.

Irrespective of the gender of the venture capitalist, the overwhelming bias at this event was to ask men questions about the potential for gains and women about the potential for losses. More than two thirds (67%) of the questions posed to male entrepreneurs were ‘promotion-oriented’ – focusing on hopes, achievements and advancement. A similar proportion (66%) of those posed to female entrepreneurs were ‘prevention-oriented’, which means they swayed towards safety, responsibility and vigilance.

This is, of course, a single study and certainly won’t be reflective of all investors. However, it supports many female entrepreneurs’ belief that investors question their competence and adjust their approach accordingly.

Funding potential

In the Rose Review, access to and awareness of funding was highlighted as the number one issue for female entrepreneurs and the biggest barrier for female non-entrepreneurs. Women launch businesses with 53% less capital on average than men, are less aware of funding options and less likely to take on debt.

Gordons is a corporate partner of NorthInvest, which sees our firm work closely with NorthInvest’s senior management team to connect and develop early-stage tech start-ups throughout the North of England. Through this I have seen at first hand the discomfort some women feel about having to undergo due diligence to access such funding opportunities.

The nature of due diligence – effectively a detailed analysis of the business, often done using intrusive and very direct questions  can be really off-putting for some female entrepreneurs. But this is a two-way street; if women are to achieve parity in funding and growth opportunities, then they must be willing to open themselves and their businesses up to scrutiny too.

The Rose Review set eight recommendations to support female entrepreneurship, including greater transparency over funding allocation and new investment vehicles to increase funding going to female entrepreneurs. Other recommended initiatives included steps to encourage UK based investors to further support and invest in female entrepreneurs, as well as new banking products aimed at entrepreneurs with family care responsibilities.

What legacy the Rose Review can leave remains to be seen, but changes are afoot. Such initiatives, together with the necessary societal changes and openness of female entrepreneurs to undergo due diligence, are all a step in the right direction towards narrowing the gender gap in UK start ups.

You can read more comment and opinion from our experts here.

This comment featured in the Yorkshire Post’s Voices column on 8 June 2021.