Business

Female business founders don’t need more roadblocks to funding

Reducing angel investment would have had a domino effect on women in business

Women don’t struggle to start a business, but they struggle to grow due to funding issues. Photograph: iStock

Anjli Raval
Thu Mar 14 2024 - 05:00

“Women back women,” says Debbie Wosskow, the 50-year-old entrepreneur and co-founder of The AllBright Collective, a private members’ club for businesswomen. “Female angel investors are so important. You don’t need to be Warren Buffett to invest.”

The UK government’s climbdown last week on financial thresholds for promoting potentially risky investments, including start-ups, to wealthy individuals, removes an unnecessary roadblock for female-founded companies.

Already in dire need of funding, these businesses were set to be among the biggest losers of the move to lift the eligibility criteria for people investing in early-stage companies to £170,000 (€199,000) of income and £430,000 in net assets. This shrank the investor pool and disproportionately affected women, who typically earn less and have lower savings than men. Earlier this month, the UK government reverted to the £100,000 income threshold and £250,000 for net assets.

For Wosskow, a lead investor in The Better Menopause, which seeks to use nutritional supplements to improve women’s health, it was welcome news as the company’s next tranche of funding will include more female investors. “It’s just not as easy for women to raise money,” she adds.

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Cutting the number of female angel investors – who finance small businesses in exchange for a minority stake – would have had a domino effect up the chain of women in business.

Women are a minority among angel investors, representing just 14 per cent of the 36,800 in the UK, according to data from the UK Business Angels Association (UKBAA). But a quarter of their investments go to female entrepreneurs, compared with 19 per cent for all angel investors.

Female founders already face an uphill struggle, from attempting to become entrepreneurs in industries often blind to female talent, to paying brokers for access to investor rooms controlled by old boys networks that only go on to give their cash to men.

The industry has been further held back as the cost-of-living crisis has exacerbated the gulf in savings between men and women, hitting female investors and founders.

The number of female angel investors active in Europe had been growing rapidly over the past few years but dropped by 42 per cent in 2023, according to data from PitchBook. This then contributed to a fall in venture capital deal activity among female-founded companies, with angel investor participation at its lowest since 2018.

Even before the latest challenges, three-quarters of pitches the UK venture capital industry received were from businesses with no women on the founding team.

Only 15 per cent of VC cash in the UK goes to companies where a woman is among those who started the company, British Business Bank data shows. The number is excruciatingly low for all-female-founded companies – at 2 per cent. Women of colour and those in developing countries find it even tougher.

This makes it crucial not to choke off female investment at a lower level.

[ Women hit 40% representation on boards of Iseq companies ]

“There is an impression angel investing is for the super-rich,” says Deepali Nangia, an investor and co-founder of Alma Angels, which works to increase the number of women in Europe who fund female-founded companies. “Women start by writing smaller cheques. But as they make money, they write larger cheques.” Since Alma started in 2020, funding has ranged from £1,000 to £100,000, she adds.

Jenny Tooth, chief executive of UKBAA, says that during recent financial stress, investors “backed and prioritised their existing portfolio rather than start new businesses”. “You need to constantly renew that pool of investors, but it’s especially hard for women to enter the market at this time.”

Successful female investors want the government’s venture capital schemes, which offer tax relief to investors who buy new shares in a company, to be promoted more widely. They also are pushing to redress the balance, either through tax incentives or co-investment funds, where the government and private sector invest together in female entrepreneurs.

“Funding is the only thing that matters,” says Alex Depledge, chief executive of Resi, an architectural technology company. “Women don’t struggle to start a business, they struggle to grow. We are not protecting the one part of the UK economy that has green shoots.”

Depledge’s theory is that women often run businesses in sectors that do not naturally attract big investment. If they do expand, they tend to be companies that are not profitable enough to secure private equity financing or growing fast enough to attract venture capital money.

Chances of a female “PayPal mafia” – the all-male group of former PayPal employees and founders who embarked on successful entrepreneurial ventures that have transformed Silicon Valley – emerging are depressingly slim. The fewer roadblocks, the better. – Copyright The Financial Times Limited 2024

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