by Lionesses of Africa Operations Department
This is a three-part look at the fund management industry as it pertains to our inspirational 1.7 million members of Lionesses of Africa. We start by looking at the current state of play. Then we will look at what everyone says is the obvious solution (such as more women in decision-making positions within the fund management industry) and then finally offer some of our suggestions as to what the solution might look like, or at the very least, what tools we need to move the dial forward. As usual, these are not academic articles, as we inject a more chatty approach to life. However, where necessary, we do direct to the source (many are academic and so peer reviewed) for your interest. We do not suggest that for one minute we have all the answers. However, if our views bring about #lesstalkmoreaction (our evening prayer), and actually start to close the funding gap, or increase the investment into the ‘missing middle’, we shall sleep a little easier. We would welcome your feedback, suggestions and even offers of assistance, because the current situation has been allowed to fester for too long, constricting too many inspirational businesses. Enjoy!
Following on from our last article in the Lioness Weekender, discussing the newly announced ‘State of Disaster’ in South Africa, true to form the new data from ‘Africa: The Big Deal’ showing the ‘State of Despair’ VC/PE investment in Africa for 2023, hits our desk with a testosterone stuffed ‘THUMP’! Fearful of what the data contained, we first thought best to look for some good news - why not prepare ourselves with what Africa could be by investigating the ‘State of Investment’ in women’s business in the USA? Surely there should be enough good news and hope there to sustain us for what we knew was coming.
Sadly, not! The numbers from Pitchbook via TechCrunch (here): “[In 2022] U.S. startups with all-women teams received 1.9% (or around $4.5 billion) out of around the $238.3 billion in venture capital allocated.” It was 2.4% in 2021, so dropped! For black founders the numbers were just as gruesome at only 1% of the funding vs 1.3% in the previous year. Given we have an ever growing and truly inspirational membership in the US Diaspora (currently standing at >150k), to say this was not good news is an understatement.
And so we turned to our new, hot off the press African data. The headline said it all:
“Female-led and female-founded ventures [in Africa] attracted even less funding in 2022 than they had in 2021 (yes, that's possible)” (see here).
In 2022 female-led startups raised $188million, whilst those who put a male face in front of the CEO title raised $4.6billion - so 96.1% of the total funding. In 2021 women CEOs raised $290mil. For all Samantha’s and Nicola’s running companies - now’s the time to start using Sam and Nic as your name…and fast! - You think we are joking? “…experiment participants rated startup founder “Laura” as far less competent than “David,” despite the two having identical credentials and the same business pitch.” (here).
The amount of deals above $100k has also dropped “…[both] absolutely (128 in 2022 vs. 141 in 2021) and relatively (13% vs. 16%)”. Our Data geeks do offer one small seed of hope, as the funding for women-only founding teams, somehow against the testosterone powered wall, raised more in 2022 ($115 mil) vs the rounding error of $44mil in 2021. But sadly this was then cancelled out by the funding dropping for gender-diverse founding teams, so male-only founding teams still raised a massive $4.1 billion vs $600 mil for gender diverse and of course the $155 mil for our women only.
Seriously, what is going on?
We recently came across “Investors prefer entrepreneurial ventures pitched by attractive men.” (here), which seemed an interesting avenue to explore, not least because it was authored by Alison Wood Brooks of Harvard; Laura Huang of Wharton; and Sarah Wood Kearney and Fiona E. Murray, both of MIT (a serious collection of incredible business schools).
Their paper’s central point is:
“Investors prefer pitches presented by male entrepreneurs compared with pitches made by female entrepreneurs, even when the content of the pitch is the same. This effect is moderated by male physical attractiveness: attractive males were particularly persuasive, whereas physical attractiveness did not matter among female entrepreneurs.” (Remember this was peer reviewed, so they had a scientific way of gauging the very subjective ‘attractiveness’.)
So let’s see. It appears that we need to forget about our well thought-out business plans, projections, previous successes, sales and social-entrepreneurship leanings, and instead beg George Clooney or Idris Elba to make our pitch for us!
Yet, as far as we are aware:
We are in 2023, not the mid 1600’s (please feel free to correct us).
VC/PE Investors still have their own investors who demand decent returns.
VC/PE Investors still have their own investors who agree non discriminatory mandates.
The Development Industry continues to celebrate projects such as the 2X Challenge that has in their words “Committed and mobilised $11.4 billion between 2018-2020”, so someone somewhere has that development money ($6.88 billion from DFIs themselves) and is (?) putting that to work to finance women’s businesses. This should protect VC/PE funds and in many cases assume the ‘first loss’ making it more attractive to invest in women’s companies.
Women bring in better returns per US$ invested than male run companies (here) - yes, seriously, and these results come from less steroids (finance) as they are forced to bootstrap their way further than men to counter the ‘attractiveness’ they are apparently missing.
Women boost innovation (here and here) so investors know they are getting forward thinking companies.
World Bank: “Female-owned enterprises operating in male-dominated industries are as large and just as profitable as their male-owned counterparts. They are also larger than those in female-dominated sectors.” (here).
“Because of the wide gender gap that exists in the startup world, women-founders are constantly having to prove their personal and business worth. As a result, female founders are more intrinsically motivated than men and more likely to go the extra mile when faced with business challenges. When push comes to shove, they’ll make the sacrifices necessary to maximize the longevity and long-term prospects of the business.” (here) - hmmm, sounds like a business we would want to invest in, especially given the volatility of the modern world.
“Companies with one or more women on their boards are significantly more likely to have improved sustainability practices.” (here)
For women, job creation is very important (here) confirmed by the 1,339 Lionesses surveyed for our latest ‘South African Women Entrepreneurs Job Creators Report’, produced in collaboration with NYU and supported by Absa, employing as they do an average of 6.4 employees (not inc co-Owners or Directors) - that’s not necessarily a factor for investor interest and was just thrown in for free for any Government or DFI employees reading this.
So given all the above, why is ‘attractiveness’ so important a deciding factor? As the paper concludes: “The results of the three studies document a profound and consistent gender gap in entrepreneur persuasiveness. Both professional investors and nonprofessional evaluators preferred pitches presented by male entrepreneurs compared with pitches made by female entrepreneurs, even when the content of the pitch was the same. Our results also suggest that persuasiveness is moderated by male physical attractiveness: attractive males were particularly persuasive, whereas physical attractiveness did not matter among female entrepreneurs…we found that male-narrated pitches were rated as more persuasive, logical, and fact-based than were the same pitches narrated by a female voice.”
As Charles Dickens showed in his monthly magazine articles, it’s best to leave readers wishing for more! With that in mind and in the best of literary traditions, we shall leave this discussion for next week where we shall look at the various solutions and one in particular, that of bringing the experts in. As all males know and have been taught by their Fathers for generations: “If at first you don’t succeed, try again. If that fails, try one more time. If that then fails - go back to what your Mother suggested in the first place…”.
Stay Safe.