As a company founded by two women focusing on increasing access to investment, we see the dramatic inequalities in the investment ecosystem every day. After seeing Atomico’s State of European Tech report this week, although it was encouraging to see a record breaking year for capital invested into European startups, it wasn’t looking good for women founders, who got a measly 1% of that (down from previous years). We decided to look at our own data to dig deeper into this disheartening trend.
It’s easy, and often accurate, to say women are constantly discriminated against and that’s the reason for the investment gaps, but our data suggests other underlying causes.
In plain terms, investors want the returns that margin-heavy companies can offer, causing them to invest in SaaS. It’s not unfair that investors, who have LPs to answer to, optimise for the business with the highest chance of producing a positive return.
While chewing on this idea, we saw a public call from a VC wanting intros to women founders, specifically in B2B ‘deep-ish tech’.
We started going through our mental rolodex of talented, scaling, fundraising women, then discounted them one by one ‘nope won’t work - consumer, nope another consumer, another, another…’
The synapses started pinging...Are women actually building more consumer businesses than men? Could this be why women are struggling to close investment? Why?
Women are building significantly more consumer focused businesses than men.
We looked through our network of 450 fundraising startups and crunched some numbers. We’ll deal with the pipeline issue first as people often talk about there being less women to choose from. Of the 450, 124 were women led; representing 28%, roughly standard for the industry.
Then we came to the consumer trend:
71% of businesses started by women are consumer focused
14% of women founded companies were building B2B Software - 17 businesses!
This is compared to 40% of startups founded by men building consumer businesses and 31% of men choosing to build B2B Software solutions - over 100 companies.
Why are women focusing more on consumer businesses?
Founders build to solve problems, oftentimes, their own problems. That leads us to ask… Where are women coming up against problems? Given inequalities in industry and the world of work, are women less likely to conceptualise investable businesses before they’ve even begun?
Harvard Business Review found that work experience plays a critical role in founder success. Compared to founders with no relevant experience, those with at least three years experience in the same industry as their startup were 85% more likely to succeed.
According to a recent IBM report, female participation in the workforce is now at its lowest since 1988. The events of the past year have actually exacerbated existing gender and diversity inequities in leadership ranks, with less women in the leadership post-pandemic, and with the majority of women at ‘Junior Professional’ level.
Is it a huge leap then to suggest that women aren’t feeling the same frustrations in the workplace as men? That they aren’t put in situations where they have the same amount of ‘aha!’ moments about deep tech B2B system integration, with the relevant experience to build and launch a company successfully?
Our data suggests women build products and services designed around frustrations linked to home life.
Home management: 18% of women in our data set are building ‘home management’ solutions. Marketplaces, apps, platforms, that make life at home more efficient when it comes to managing priorities, shopping, being a caregiver, etc.
Shopping: 21% related to ‘shopping small’ - marketplaces focused on independent businesses which are more sustainable, or support communities.
Communities: As well as supporting communities, 13% of businesses built were about connecting people.
Health and wellbeing (of the family): 25% related to health and/or wellbeing, with a focus on personal responsibility / health management for individuals and families. There was a particular trend for communication products for people impacted by Parkinson’s, Dementia and Autism.
Why is this a problem when it comes to fundraising?
There are more men in VC than women. Yes it’s getting better, and yes it should be about the numbers, but this trend is a problem because women aren’t always pitching to people that understand the problem, the opportunity, and why it’s important. (Good to see Iris Ventures recently launched a €100m fund to support consumer businesses in health, beauty and education).
That has always been the case though and investment into women founders is reducing.
Anecdotally, we've heard a lot more investors seeking B2B businesses, and our guess is that the focus on consumer businesses generally is declining. The concern? This is going to continue into 2022, and beyond. US investors are flocking to Europe to deploy capital. In 2021 alone, €10.1 billion has been invested by US American VCs into European startups. Which startups? B2B Saas mostly. Why? Because Europe is great at B2B - most industry leading B2B software startups are European, and they come with lower valuations, and they generate 10% more value per invested capital. Not only that, but B2B unicorns overtook B2C in 2021 for the first time, and narratives suggest it’s a sign of a changing tide.
While there are now countless initiatives cropping up to solve the issue around the misrepresentation of women in tech, there hasn’t been much discussion as to why this is happening in the first place. We’ll be discussing this in a mini four-part series discussing the why’s, the how’s, the wtf’s and the what can be done? Follow us as we continue to explore.