Raising money from investors is a challenging enough task for startup founders in general, but even more so for female entrepreneurs. In 2019, US startups with female CEOs represented only 13.5% (pdf) of all venture capital investments, according to PitchBook, a private markets data provider. Globally, less than 5% of venture capital went to female-led startups in 2019. And the coronavirus pandemic has hit female-led firms disproportionately when it comes to venture funding.
Despite its vibrant and diverse startup sector, this underrepresentation of women in tech is as stark in Africa as it is elsewhere in the world. A 2020 TechPoint report estimated that only 10% of west Africa-focused startups with at least one female co-founder successfully raised $1 million or more in the last decade. The African Development Bank has pitted the entire funding gender gap at $42 billion.
With venture capital crucial to catalyze business growth, the funding model needs to change. Several African venture funds in recent months have recognized this, and are turning their focus to female-founded startups, while existing funds and accelerator programs are bringing more women into their fold.
For example, South Africa’s Alitheia IDF fund, which focuses on small to medium businesses with high-growth potential, last year announced it had raised $75 million to invest in mid-sized, women-centred businesses. It plans to invest between $2 million and $5 million in startups from Nigeria, Ghana, South Africa, Lesotho, Zimbabwe and Zambia in the coming years.
And more recently, Future Africa, a co-investment VC firm founded by Nigerian serial entrepreneur, Iyin Aboyeji, announced it would invest up to $1 million in women-led startups.
“Our normal system still throws up heavily biased outcomes” against female founders, Aboyeji told TechCabal, a Nigerian publication. “We believe we’ll make money if we can find the best ones.”
Further boosting opportunities for female founders, Catalyst Fund, a global startup accelerator, announced that five of the six cohorts for its 2021 Inclusive Fintech Program are led or co-founded by women in emerging markets, including Kenya, South Africa, and Nigeria. Each startup will receive £80,000 ($109,000) in grant capital and six months support and access to investor networks.
After consistently supporting all-male teams for years, Catalyst Fund had made “a conscious decision to make this cohort more inclusive for women, given the gap in funding and support to women founders,” Maelis Carraro, Catalyst Fund MD said.
Under-funded yet over-mentored
Studies have found that the traditional investor pitching and deal sourcing processes often fails women, especially early-stage female entrepreneurs. One 2014 Harvard study details the ways in which this gender bias emerges, with male entrepreneurs 60% more likely to receive funding for their pitches than female entrepreneurs.
Other research finds that traits associated with successful entrepreneurs, such as risk-taking and leadership, are often ascribed to men rather than women. A 2019 Morgan Stanley explored how the idea of the right “fit” compounds the VC funding gap for women and multicultural entrepreneurs.
As a result, a strong emphasis has sprung up on training so as to “improve” their abilities to manage teams and access investor networks. All too often, this creates a system where female founders are over-mentored yet underfunded, says Eloho Omame, managing director of Endeavor Nigeria, a program for high-impact entrepreneurs.
This manifests in different ways. For example, female entrepreneurs are often trained to pitch differently from their male peers. A 2018 study of MBA students professors at INSEAD and Harvard, showed that female-led ventures are perceived to be less viable on average. But that sentiment significantly changes when the emphasis is on social impact. This bias and pattern matching doesn’t only influence the pitch process. It could also relegate women entrepreneurs to funding like grants, instead of the risk capital they desperately need to grow and scale.
“The [investment] system isn’t working very well for women, and someone needs to fix it,” Omame says.
Omame is working with Odunayo Eweniyi, a 2019 Quartz Africa Innovator and the COO of Piggyvest, a fast-growing Nigerian fintech, to address the funding gap for women. In January, they created FirstCheck Africa, a female-focused angel investing fund set up to back technology entrepreneurs at “ridiculously early” stages.
The fund will invest between $15,000 and $25,000 in female-led teams, with the goal of being the first outside investor backing founders. FirstCheck did not disclose to Quartz how much equity it is looking to get, but at a recent Clubhouse event, Odunayo explained that it will vary on a deal-by-deal basis. Over the next ten months, the fund plans to back six female founders, supporting them through ideation to a “significant” pre-seed round within 12 months.
FirstCheck joins a growing number of not just African startup investment funds but angel funds with a gender-lens. Similar female-focused angel funds include Rising Tide Africa, a Lagos-based network, and Dazzle Angels in South Africa.
And like the others, FirstCheck isn’t just a funding initiative. It is building a community of female entrepreneurs, and developing a pipeline to make it easier for women to start their own companies and confidently raise their first capital, steps crucial to their success.
For many startup founders, early-stage investment is more likely to come in the form of informal funding—the so-called “friends and family” round—than angel investors, as founders discuss their business ideas with people in their network. But at this stage, ideas are ripe for feedback, or to be reshaped for better execution.
At the root of the issue is that the number of women working in tech is relatively low. A McKinsey report from 2016 (pdf) showed that women held only 33% of senior management positions in African media, telecoms, and the technology industries. A more significant number of work in non-management positions. FirstCheck’s goal is to tap into this pool of female leaders who may not have the minimum capital to participate in typical VC funds, but would like to invest and share their knowledge and access to their network.
“The best way to support female founders is to act consistently and with conviction, and commit risk capital,” Eweniyi, FirstCheck’s co-founder says. The fund aims to work with women to “take their ideas to MVP [minimum viable product], build early traction, and raise their next funding rounds.”
Although this would take some work, it may influence a shift in thinking among other investors regarding female-led businesses in Africa.