by Lionesses of Africa Operations Department
Firstly, an apology. We had previously written that the amount of investment from the VC world that flows into all-women founded businesses each year was stuck firmly at 2%. There was nothing it seemed we or the world could do. No matter how large the amount of money that ticked the 2X Challenge boxes, no matter the amount of time spent on this iniquitous issue, and no matter the amount of times we highlighted this, 2% always seems to be the result. The other 98% consisted of a mixed founding teams (usually around 20% of total) or all male (making up the balance of 78-80%).
We were wrong, the 2% is not so sticky…
When we opened up our email from the data kings that are ‘Africa: The Big Deal’ (who spend hours and days trawling through newspaper reports, and following up on rumours as to the latest deal done across the African continent), the first thing we noticed was the title:
“🤦♂️2024🤦♀️ It's a Man's Man's Man's World.” (here)…
and then our eyes are drawn to the chart - that tiny 2% had moved…
…shockingly, the wrong way!!!
Investment into all-female founding teams now stands at an utterly pathetic 1% of the total and founding teams with a gender-diverse team had collapsed to 5.5%, meaning the boys-only club took in a hefty 93.5% of all equity investment in 2024. To put that into raw numbers, the boys-only club took in $2.1 billion, gender diverse a sad $121 million and women-only $21 mil during 2024.
In fact it gets worse as ‘Africa: The Big Deal’ actually add in grants and debt from the VC world into that total, so this shows the entire VC interest in Africa.
We truly thought we were gaining some kind of momentum because in 2021 female-only founding teams took in just above 1% of the total, in 2022 this rose to 2.4%, in 2023 it was 2.7% (here) - we were on a roll we thought! How wrong we were.
It gets worse again (yes, that is possible), if you have a female CEO, that number too collapsed from in 2023 a meagre US$201 million (out of US$2.9 Billion), so 7% (here) to in 2024 $43 million out of $2.2Billion ( 2%).
The only silver lining that we can see is that ‘Africa: The Big Deal’, so shocked by those numbers has kindly offered a 75% discount on the subscription to their incredible data set for any African Female Founder (see here). This gives a list of all deals done, what size and by whom, to whom. Looking to raise? You can quickly sort to your industry, ticket size and who is actually interested in investing in female founders. You will recognise some friendly faces such as Ola, Adesuwa and Sarah (surely we don’t have to state yet again that we are huge fans of their work!), plus the brilliant Hannah of Launch Africa, all doing their bit, but they alone cannot hold back the tide. In fact to be fair, they are not ‘doing their bit’, because no Lioness wants charity, just simply fair access to show what they can do and this is exactly the chance they have been given by these four brilliant investors. Certainly in the portfolios of these four, Lionesses are doing more than their bit - they are knocking results out of the park, growing strongly, building their businesses and team, whilst creating serious profits backed of course by the mentorship and directorship of these brilliant investors.
Europe and the USA? With Pitchbook, we find the same. The VC investment into women-only founding groups for both EU (here) and USA (here) is at the same level, at or below 2%. Add a man and in the EU this rises to around 18%, in the States - 20.8%, this means that all-men took in 78%-80%.
What is going on? Where are we all going wrong - why are such great business (and they are great as results show) being ignored?
We have previously written that “Investors prefer entrepreneurial ventures pitched by attractive men.” (here), the paper’s central point being that:
“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.” (N.B.this is a serious academic paper with authors from Harvard, Wharton and MIT no less, and peer reviewed).
Why is ‘attractiveness’ so important a deciding factor? Surely it doesn’t all come down to that.
More female investors may well be the answer as “…male investors will tend to associate themselves more with male entrepreneurs.” (European Investment Bank, here) and a lot of work has been done on this side, but sadly as Morningstar confirm: Women have entered the industry at the same rate they have exited it, so their representation has fallen as the industry has expanded.” (here). Looking at just the VC world we see that “[o]nly 9.65% of decision-makers at U.S. venture capital firms are women.” (here), simply not enough to move the dial.
The reasons behind this possibly brings us back to our often used plea that until and unless the credit and risk depts (where the sign-off power lies) contain more females, the frustrations felt by female investors trying to get their deals through their own fund’s committee stages will continue to drive many promising women away from these essential roles.
Don’t think that bank’s with their credit and risk depts, and loans escape, this also follows the trend: “…it is estimated that [women] only access between 2 and 10 percent of commercial bank finance. This holds true in emerging markets, where women-owned firms represent 31 percent to 38 percent of all small and medium enterprises (SMEs), but have unmet financial needs close to $300 billion every year.”, according to the World Bank (here), which seems a bit strange to us given the huge amounts flowing into banks with a ‘2X’ stamp of approval. Clearly criteria no.1 ‘Entrepreneurship and Ownership’ is not as easy as it sounds - but what do we know? We only have over 1.8 million members who tick that box…
It’s not all bad news - serious work is being done. At the recent WeFi and Standard Chartered Webinar "AI for Advancing Women’s Data and Financial Services: Insights from Standard Chartered’s SocialAI Model” (here), we began to understand more. Historically Banks have not been able to clearly see the gender split in their portfolios and so could not gauge if a particular gender was better than another, but this is now changing as working with AI they have found a way, although hinting that some countries and regions proved more difficult than others. Knowing the lack of data across Africa, we can take a guess which was at the bottom.
In answer to our question as to how they will now make that work in the credit and risk depts (where the real power is held)? Natalie Marko Nietsch, Managing Director, Head of Social Sustainability, Standard Chartered Bank, who is the driving force behind this, replied that whilst in the past it has been difficult to persuade such depts of the merits of lending to women, now thanks to the AI model they could track previous deals, show the great results (no shock - very impressive apparently) and therefore not only bring the credit and risk departments on board, but also encourage the sales teams to go out there and work more with female founded businesses, bonuses being as they are, based on results.
As for results, we would suggest the data was already out there, yet still made little or no difference…:
BCG (here) did a study in 2019 that showed Women bring in better returns per US$ invested than male run companies (78 cents per $1, where as male-founded startups generated only 31 cents);
The 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);
and WB again:“…women-owned firms in the US are growing at more than double the rate of all other firms and contributing almost $3 trillion to the economy.” (here);
First Round Capital: “…our investments in companies with at least one female founder were meaningfully outperforming our investments in all-male teams…perform[ing] 63% better than our investments with all-male founding teams.” (here); “
The Kauffman Fellows Report also found that that women-led teams generate a 35% higher return on investment than all-male teams.” (here)
...and so on.
If Credit and Risk depts wanted to know, they just had to ask.
Whilst we are very excited that such great work is being done to find the gender of Banks’ portfolios, and truly hope Natalie’s optimism wins the day, studies have shown that knowing the gender (or even the results) makes little or no difference to ‘inbuilt gravitational pulls’. This is why when major Orchestras are looking for a new member, the applicant has to play the requested music behind a screen, because time and time again those interviewing in the past would employ the male applicants. This has transformed Orchestras for the better as many more brilliant women now get through, implying that when gender is completely removed, merit simply wins. Suggestions as to how that screen can be designed for VC and Banks where applicants pitch in person, would be most useful.
Perhaps that is the answer. We should actually go the other way, and the photos and names of the ‘Team’ should be redacted and investment and lending should become like ‘Justice’, truly blind? The current route is simply not working.
Stay safe.