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Women mean business – but can they access investment?

Author: ICAEW Insights

Published: 05 May 2022

Female-led companies make up 16.8% of all UK companies and attract a fraction of the investment achieved by their male-led counterparts. What are the obstacles and how can they be broken down?

The history of women’s struggle for equality in the workplace is well documented, from the Match Girls’ strike in 1888 to the passing of the Equal Pay Act in May 1970 and the introduction of mandatory gender pay gap reporting in 2017. Latest figures show that women in the UK were paid just 90p for every £1 earned by a man and, while women on boards in FTSE 100 companies now number 40%, there are only nine female CEOs running FTSE 100 companies.

But what about the women who are starting and running their own businesses? To gain a clear picture, you need data – and The Gender Index, launched at the end of March, was conceived to provide exactly that. Powered by mnAI (a member company of ICAEW’s Corporate Finance Faculty), it is an online interactive tracking tool of 4.4 million active UK companies and aims to create a national benchmark of the current level of activity undertaken by companies – from large corporations to SMEs and start-ups – that are owned or led by female founders. 

Female-led companies (where more than half the directors are female) make up just 16.8% of all UK companies. They attracted less than 12% of the 1.3 million investments made in UK firms in 2021 – or to put it more starkly, 0.1% of UK private equity investments (by value) and 0.5% of UK venture capital investments (by value). By contrast, 61% of active companies are led by men and attracted two-thirds (66%) of all investment. The average turnover of female-owned companies is £1.3m, compared to £3.1m for male-owned companies.

Yet there are more females starting companies than ever before. In 2021, there were 145,200 all-female-led incorporations (those incorporated with 100% female directors), up from 56,200 in 2018. This represents an average year-on-year growth of 37% per annum. These incorporations comprised 20% of the total in 2021, up from 16% in 2018. The total 2021 figure including those led by a majority of female directors was 148,800. 

So why are women missing out on funding? Jill Pay, Chair of the Gender Index, says: “There’s lots of research telling us that women don’t ask for enough money and that they are not as good at pitching for money as male-led companies are. Also, I think a lot of investors are quite blinkered. There is an old boy network – who you know, the golf club, that kind of thing – and that needs to change. But women-led companies are a good investment: research tells us that they’re risk-averse and they sustain longer. It’s a huge opportunity for investors.”

The 2022 Scaleup Institute Female Founder Index 2022 Scaleup Institute Female Founder Index backs this up: more than 60% of female-founded scaleups are more than 10 years old. The research also showed that the number of visible female-founded scaleups has increased by 34.5% since 2020, with a 41% increase in aggregate turnover to £14bn, attracting £5bn in investment and employing almost 65,000 people.

How can we break those barriers down? Says Pay: “It’s about raising awareness. It’s about giving good case studies and role models. We also need to get inside the minds of the venture capitalists and understand what it is that they’re not seeing. I would say to a potential investor: have an open mind, don’t look at them as a woman, look at them as a business owner; look at other businesses in this sector, and see how well they’re doing and growing.

“But it’s not only about finance – it’s about women understanding how to set up a business, how to write a business plan, how to make the approach, who to approach. With the Gender Index, you can interrogate the data and find out what kind of investor is interested in your sector.

“One of the things I would advise any woman to do is to find a mentor very early on, before you even think about which kind of investment to go for. Find someone who’s probably not done the same as you’re doing, but who has set up and successfully grown a business because they will have made the mistakes and learned from them. It’s a lonely place being a woman business owner, so it’s good to have someone to bounce ideas off, who’s non-judgmental and gives you support.”

In 2018, the government commissioned NatWest Group CEO Alison Rose to lead an independent review into female entrepreneurship and highlight the barriers faced by women. The first Alison Rose Review of Female Entrepreneurship was published in March 2019. This highlighted that if women started and scaled new businesses at the same rate as men, up to £250bn of new value could be added to the UK economy. Funding, though, is the number one barrier for female entrepreneurs at every stage of their business journey. The most recent Progress Report shows that the situation is improving, but there is still work to be done.

The first recommendation of the Rose Review was to launch the Investing in Women Code, 

to support industry and government to better understand this barrier. It’s a commitment by financial services firms to improving female entrepreneurs’ access to tools, resources and finance. The Code commits lenders and investors to collect and report data about their performance backing female-led firms and to motivate signatories to take responsibility for addressing the inequality. In total, 134 institutions with an investing power of nearly £1trn have now signed up to the Investing in Women Code.

Catherine Lewis La Torre, CEO, British Business Bank, says: “As the UK’s largest domestic investor in venture and venture growth capital, the British Business Bank is committed to diversifying our sector. That’s why we are proud not only to be a founding signatory of the Investing in Women Code, but also to manage it, on behalf of HM Treasury, for venture capital funds.

“Reporting against the Code provides greater transparency across the industry and many signatories have taken further positive steps to help address challenges faced by female entrepreneurs. These include holding ‘open office’ sessions to allow them the opportunity to build their venture capital networks, improving the tracking of diversity of deal flow and taking steps to embed diversity in their portfolio companies.”

David Petrie, ICAEW’s Head of Corporate Finance, acknowledges that more women on the advice side would help the situation. He says: “ICAEW is working to increase the number of women training for the ACA and then also moving into the advisory and corporate finance departments in member firms. When it comes to raising finance, there is no substitute for good advice and for businesses led by women, there is now an increasing likelihood that this advice will come from women experts and ICAEW members.”

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