Female entrepreneurs are systematically conquering the world’s entrepreneurship scene and have recently developed into the fastest growing founder group in the world (Birkner, Ettl, Welter, & Ebbers, 2018). With innovative solutions, they do not only follow their male counterparts but increasingly venture into new areas of entrepreneurship. These female-led startups provide highly promising but oftentimes uncommon investment opportunities, which require investors to think out of the box. The emergence of femtech, which has become an umbrella term for innovative, technology-driven products and services tailored towards female needs, has shown how much the male dominated community of investors struggle to recognize the potential of catering women’s needs.
Reason #1: While numbers of female founders is growing, investment is not
While investors are missing great investment opportunities, female founders lack adequate financing to grow their business. The relationship of female founders and their access to capital is complex. In the past decade, significant research has shown that women struggle to access to entrepreneurial financing all over the world. Thus, the total number of female entrepreneurs is growing and so seems their access to capital funding (Birkner, et al., 2018). However, enthusiasm quickly fades when we take a closer look at the numbers. Brush and colleagues (2018) did so and found that despite the frequent call for diverse teams, all-men venture teams are still four times more likely to receive funding from venture capital investors than ventures with just one woman on their team. Only 2.7% of the venture capital funded companies had a female CEO. Meanwhile, 86% of all venture capital-funded businesses did not have women in management positions (Brush et al. 2018). In Switzerland, the situation is not much different: In 2018, the Swiss venture report looked for the first time at female-led startups and showed that 10 out of 175 start-ups have a female CEO: these companies received about 2% of investment (Swiss Venture Capital Report, 2018). The report “the State of European Tech“, published in 2019, draws an even darker picture for Europe: the financing of purely female entrepreneurial teams was going back in 2019. While 91,6% of the financing was invested in male teams, only 0.4% was invested in female teams – although they accounted for 21% of the sample.
Reason #2: Lack of understanding why and how to best address this gap
The access to entrepreneurial funding has long become the most popular topic in women entrepreneurship research (Henry, Foss & Ahl 2016). Over the past two decades, it has clearly demonstrated that the gender gap in entrepreneurial financing exists and persists. Worldwide, female founders are considerably less likely to access entrepreneurial financing than male entrepreneurs do (Edelmann et al. 2018). Women face challenges in acquiring funding, regardless of different institutional and cultural contexts, sector, size or stage of development (Leitch et al. 2019, p.104). Scholars have found that external resource providers charged female founders with higher in- terest rates (e.g. Fraser, 2005; Wu and Chua, 2012), asked them to disclose more information (e.g. Constantinidis et al., 2006; Murphy et al., 2007), and provided smaller loans (Eddleston et al., 2016). Given these biases, it is little surprising that female entrepreneurs use less formal and external sourced to finance and grow their business (Yang et al. 2020).
What factors have researchers identified to influence the financing?
Despite this rich demonstration of the persistent gender gap, we are still far from understanding the formal and informal challenges, which female founders face in acquiring financing (Leitch et al. 2019). Today, we know, however, that a complex interplay of individual, organizational and institutional factors are at play for women seeking entrepreneurial funding (Leitch et al. 2019).
Today’s two perspectives on the female struggle for financing co-exists: The first perspective, which is still prevailing, focuses on factors that influence the demand for funding female founders. This perspective concentrates to a large extent on individual characteristics and emphasizes for example women’s lower willingness for launching growth-oriented firms (Bitler, Robb, Wolken, 2001); differences in risk taking (Sanchez, Fuentes-Garcia, 2010); lower levels of entrepreneurial self-efficacy (Kirk- wood, 2009); and less financial knowledge (Lusardi and Mitchel, 2014; Riding, Nitani and Orser, 2017). The second perspective stresses the supply side by focusing on macro-level factors (such as the characteristics of a region, country or a society) that are beyond the control of the individual female entrepreneurs. Examples are the existence of networks who exclude women entrepreneurs (Eddleston et al. 2016), gender bias in bank and investor decision-making (Zazzaro et al. 2010) or homophily in the acquisition of equity capital (Sohl et al. 2007).