Investor bias is sidelining funding for a large chunk of entrepreneurial capacity, but female founders are hunting for capital, and research-backed return on investment should hold them in good stead.

    The questions from investors about potential problems with her business came thick and fast when Deb Noller was establishing her real estate software company, Switch Automation. “A company you found is like your baby and then you pitch to 20 people and they tell you it’s ugly, and ask what could go wrong,” she says. “Men don’t get asked those questions.”

    However, it wasn’t only the pitching process that made her realise the extra difficulties women entrepreneurs were facing. “I looked around and realised how powerful men’s networks are”, she says. “It’s not about your capability, it’s the power of the network and these men use them.”

    While success stories like those of Canva co- founder Melanie Perkins and Kate Morris of Adore Beauty attract headlines, female entrepreneurs face an uphill battle to access funding. Women founders attracted just 5.3 per cent of a record $2.7b of venture capital funding in the first six months of this year, according to analysis by KPMG and Pitchbook. That’s an increase from under three per cent and partly due to the runaway success of Canva.

    “It’s hard to be a woman raising capital anywhere in the world, including the US,” says Noller, although she has built a successful business that is now operating in the US and Singapore.

    Bridging the investment gap

    Australia has registered 355,000 startups, but just 22 per cent are led by women — a rise of only three per cent in 20 years — 2019 data from the Wade Institute found. International data shows startups with male-only founders receive more than 85 per cent of global VC funding; those with women founders receive three per cent; while 97 per cent of VCs are male. This is despite women-founded businesses delivering up to 10 per cent higher revenue than those founded by men, according to US data from Boston Consulting Group.

    The bias Noller faced is still a reality, despite some good news emerging, according to non-executive director Carol Schwartz AO FAICD, an active investor and advocate for women-led businesses and co-founder of angel investor network Scale Investors. The gender investment gap usually hinges on stereotypes, which create different success expectations and criteria, with Schwartz saying women tend to be assessed on past performance and men on potential.

    “At a pitch, women are much more realistic about growth whereas their male counterparts will show a ‘hockey stick’ (projected growth chart) that gets the heart pumping, but often proves to be impossible,” she says.

    When women don’t have a track record — often the case with startups — they find it particularly difficult to raise funds. The bias driving the funding gap has led to a wave of networks and groups being established to accelerate and support women entrepreneurs — such as Heads Over Heels, Springboard and SheStarts, as well as Scale Investors. Two US-based Australians, Kate Vale and Marisa Warren, this year launched venture capital fund Aliavia Ventures with a focus on investing in both US and Australian female founders.

    The different scrutiny women face is obvious to Catherine Robson GAICD, chair of Scale Investors, which has about 100 investing members in a range of women-led businesses. “One of the things unique to Scale is that unconscious bias happens for all of us,” says Robson. “There are many angel groups, including Heads over Heels and Springboard, doing great work, trying to encourage female investment. But they don’t have that bias as a focus.”

    The picture for women founders can be even more bleak depending on the type of funding and the sector, says investor and Scale member, Wendy Bonnici. Often women can find seed funding, but as they grow, the process becomes more difficult. Then there are higher barriers to entry when the business is in a sector where women are deemed less likely to have expertise, such as agtech, fintech or medtech.

    “My observation is that medtech doesn’t have a huge amount of female founders and valuations in that space are much higher. There may be a risk perception for women founders,” says Bonnici.

    What we have observed over the past year is that male investors... look for co-founding teams. Their criteria is — are they diverse enough?

    Wendy Bonnici
    Scale investor

    Investment is not just about VC funders writing cheques, but supporting these businesses as they grow and connecting them to relevant resources, says Robson. A clear definition of what a female-led business is helps ensure the sector is seen as a real asset class.

    Aliavia Ventures

    When former Microsoft Australia and SAP executive Marisa Warren moved to the US in 2019, she quickly forged a connection with former Google Australia managing director Kate Vale, who lives in LA. “We knew we wanted to invest in female founders and Aliavia really started at the beginning of 2021 — we’ve made four investments and are in the process of another two,” says Warren.

    The businesses they invest in must have one female founder on the team with a significant role and equity. One of the catalysts for setting up Aliavia was seeing the tiny amount of funding for women founders decline. “When the pandemic hit the US, funding for women founders dried up,” says Vale. “In 2019, it was 2.7 per cent of funding, last year, it was 2.2 per cent. To put that in perspective, in 2019, WeWork raised US$5b — more than all the money raised by women founders.” As word has got around about the fund, there’s been a stream of emails from women founders struggling to get traction and attracted to the skillset Warren and Vale bring to the table. They usually take a board seat on the new business, and, unlike those from more traditional sectors, can provide relevant tech executive experience.

    “We can add value and founders want that, and want female investors,” says Warren. Aliavia being based in the US also helps Australian entrepreneurs, who can find barriers to raising funds there.

    The US venture capital space is still dominated by men, with 65 per cent of firms in 2020 having no women partners — and in Australia, only about 10 women partners in 130 firms, says Vale.

    Before launching Aliavia, Warren had established Elevacao, a pre-accelerator for early-stage women entrepreneurs, which acts as a pipeline to the new firm. The bias that continues to stymie women entrepreneurs also leaves investors missing out on key opportunities. “Female founders, on average, have a 35 per cent higher ROI than other businesses — you are not only doing good, but going to make a better return because of diversity,” says Warren. And they often see a snowball effect after they lead-invest in a business, using their networks.

    Women founders have difficulty finding lead investors, but once an investor takes a bet on them, others who may have passed on the opportunity can come back. Warren says the increase in women investors and VC firms is likely to continue. “It will improve just because we are part of a female GP (general partners) group in the US of women who started their own firms. We are seeing that shift, and it’s women who are saying, ‘I can’t break through in some of these old boys’ clubs, so I will start my own’.”

    New partnerships

    Scale is working with the federal government to develop an education program — Closing the Entrepreneurial Gender-Investment Gap — for the sector to enhance the skills of decision-makers. And Robson says it is partnering with funds manager Artesian, which has two superannuation funds committed as cornerstone investors, to launch the Scale Artesian Female Leaders VC fund, which aims to raise $100m that will be invested in women-led businesses.

    Many members of these networks and investors are women keen to support other women, but there is growing interest from a range of investors and directors who want to learn more about innovation.

    Another motivator for a broader pool of investors, says Schwartz, is FOMO (fear of missing out) on the next best thing, which could be a business founded by a woman.

    Having more women VC partners and angel funders has also made a difference, says Bonnici. In the past six years, the funding gap between men and women has started to narrow, despite the need for much more to be done.

    “That change has been quite dramatic and there are fantastic advocates who have driven that,” she says. This includes venture funds such as Tenacious, Tractor, Flying Fox, and AirTree.

    “They have employed women as partners and there are so many more women in the system. Fantastic women are investing in the area and supporting founders,” she says, adding that she has seen more investors looking for diversity (gender and cultural) in emerging businesses. “What we have observed over the past year is that male investors don’t want to invest in single founders or only male founders, but look for co-founding teams. Their criteria is — are they diverse enough?’’

    One of the lessons learned since Scale was founded 10 years ago is that potential investors and directors with experience in large listed companies can learn from getting involved in startups.

    “It’s an opportunity to have a hands-on interest in innovation and it changes the way you think,” Robson says. “Most often, they come from a different background and age group. The magic comes from having investors in the room [with business founders] to collaborate as a due diligence team.”

    When people change their mindset from “something nice to do” to “there’s a financial imperative to broaden my mind on this”, it becomes a game changer. Scale has recognised that it’s critical to find the right governance approach and define what doesn’t work with a new company.

    Directors on the boards of startups often find they need different skills and a very clear vision of purpose, says Robson. “The approach has to be fit for context, it’s a value-creation mindset.” Instead of asking founders to “go and write a paper on this”, it’s about how they can be creating better value.

    As a long-term investor in women entrepreneurs (her family foundation, Trawalla, is also a foundation investor in Aliavia) Schwartz says the past five years has seen a shift.

    “Women have been backing other women and there’s general awareness that female founders have the ideas and are bankable. Now, even more young women are doing exciting things because their businesses have been tech-enabled — and it’s allowed them to think outside the box.”

    Part of the core challenge with addressing bias in the system has to be changing what a successful business founder looks like, says Robson. That means investors recognise and participate in major opportunities in the future.

    “Our mission is not a charity,” she adds. “It’s to drive financial value”.

    Nothing ventured

    One of Australia’s leading venture capital firms, OneVentures is focused on investing in early-stage and emerging- growth companies in the healthcare and technology sectors.

    By Nina Hendy

    The healthcare and technology sectors have boomed during the pandemic and there is no shortage of opportunities coming through. Despite lockdowns, a lot of entrepreneurs have seen opportunity during this time, bringing new ideas to the market, says OneVentures managing partner Dr Michelle Deaker.

    “At the start of COVID, we all thought the world was going to implode and started planning for the worst. But what we saw was the acceleration of digital,” says Deaker. “In particular, we saw massive digital adoption across all different sectors that had never really leveraged digital in the past — such as education and healthcare— and we’re just not going back.”

    Businesses have also made a big technological leap during the pandemic, she adds. “Investment dollars have been flooding into the startup sector, with high valuations being paid for companies, says Deaker. “In turn, this has opened up opportunities for large amounts of growth capital to filter into Australian companies. Investors have realised that Australia can create great global businesses, and they communicate that with capital.”

    A case in point is Employment Hero. OneVentures invested in the human resources technology company, which recently announced it had closed a $140m funding round with an $800m valuation. OneVentures recognised the opportunity, investing in the company from its $75m Innovation & Growth Fund Two.

    OneVentures has more than $500m in funds under management and has deployed about $280m in 28 early- stage and growth- stage companies since launching.

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