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Closing the gender gap: work in progress

Author: Meera Shah and Poppy McMullan

Published: 06 Dec 2023

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There are signs that the gender gap is closing for female-founded businesses, recently seeing an increase in investment. But, as Meera Shah and Poppy McMullan of Buzzacott report, when it comes to scaling and achieving exit, there is still much more work to be done.

Earlier this year, The Rose Review 2023 Progress Report was published – the annual analysis of female entrepreneurship commissioned by the UK Treasury – and one stat jumped out. The review found that all-female-led corporations now make up 20% of all businesses in the UK, up from 16% four years before.

Other recent examples of wider progress in levelling the playing field between male and female founders include the marked improvement in US female-founded venture capital raises, which increased from $2.5bn to $20bn in the decade to 2019. However, to put some context around that, this was also a decade where VC boomed more generally.

More sobering stats came from PitchBook in 2022, which showed that companies founded solely by women garnered just 2% of the total capital invested in VC-backed start-ups in the US. In Europe, the percentage was even lower, at 0.9%.

Through to exit

The pace of progress is clearly still a matter of debate. How many female-founded businesses are able to raise finance to scale up and get to a point where an exit becomes an option? The raw data for exits achieved by businesses with a female founder over the past 10 years does not paint a pretty picture – less than 1% of all businesses that sold a majority stake in the 10-year period to 2019 were female-founded. This figure suggests there is still a major gender gap when it comes to raising sufficient scale-up capital. The question is, how long will it be until work being done to close that gap can be demonstrated by the figures?

The proportion of female-founder exits was smallest in Europe, at just 0.35%, compared with 1.37% in the US. This reflects a staggering gender disparity and reinforces the need for more female founders, with access to funding to grow their businesses. Hand in hand with that, more advice must be made available to female founders to enable those businesses to scale and reach later stages and achieve exits with a more developed bigger business. 

Despite the disparity, analysis of exits by sector shows that female- and male-founded businesses have followed similar trends. The top two sectors of businesses exiting in this 10-year period were technology, media and telecommunications (TMT) and industrials for male-founded companies, and TMT and consumer for those that were female founded. The concentration of female-founded businesses in the consumer sector was, however, a likely driver for the number of exits falling by 11% in female-founded companies between 2019 and 2020, compared with an 11% increase in exits of male-founded companies, given that consumer sector deals were more significantly impacted by the pandemic than other sectors.

Value judgement

Unsurprisingly, the average transaction value differs considerably from sector to sector. The average value of exits in the consumer sector was 18% higher in male-founded companies. The disparity in the TMT sector is starker, with male-founded exit values averaging 1.5x higher than female. 

Part of the reason for this difference may be that female founders are exiting their businesses at an earlier stage. But one known issue is the challenge women face in achieving valuations on a par with those gained by their male counterparts for equivalent businesses. This issue is two-fold and interrelated. First, there is a need for more diversity in investor and adviser firms. Second, there is a need for continued, persistent focus on supporting female-founded businesses from start-up to scale-up and on to eventual exit, specifically including confidence in embarking on the fundraising stages.

So while we should celebrate the progress reported by the latest Rose Review, it is obvious that more change is required.

Diversity-focused funds

The lack of diversity in venture capital and private equity teams is particularly obvious in the leadership teams of investment firms and, although numerous diversity-focused funds have been set up, female founders are still struggling to gain equal access to venture capital.

Steps are being taken to help the evolution into a fairer, more equitable investment industry. The British Private Equity and Venture Capital Association (BVCA) is partnering with Level 20, which focuses on increasing the percentage of women in senior leadership in European private equity. The Rose Review and Diversity VC, a diversity-focused venture capital fund, are working to hold member firms to a higher standard of diversity and highlight the continuing issues. The BVCA’s 2023 Diversity and Inclusion Report found that the number of women in senior investment roles across all firms included in the study was just 11%, and 48% of the firms had all-male investment teams.

Whether or not businesses choose to take on capital as they scale, they will need access to support and advice throughout their growth journeys. The Rose Review research has shown that in the 16- to 24-year-old age group, there has been a fivefold increase in young women starting businesses, compared with 2018. As these companies plan to scale, with their support systems being a combination of female-founder member clubs, forums and events, the ability to access advice will be crucial.

Societal change

There are also many wider issues. Childcare responsibilities, for instance, still fall principally on females. Changing this requires policy-level decisions to be made, in addition to individual organisation-level attention. 

However, change is happening elsewhere. Forbes has reported that female-led start-ups have more than doubled since the pandemic, as women decide to take charge of and improve their work-life balance. Also, the 2022 ScaleUp Institute Female Founder Index’s research showed that the number of female-founded scale-ups has increased by 34.5% since 2020, with a 41% increase in aggregate turnover to £14bn, attracting £5bn in investment.

Despite this, the shifts in female-founded businesses in the past decade, particularly in the arena of exits, are frustratingly small. But the work to improve this by enhancing founders’ ability to scale towards an exit has begun and the first benefits are starting to be felt. As more female-founded businesses start and scale, with the right level of consistent support over time, the data in 10 years’ time will hopefully show greater progress as the impact of change starts to filter through.

Meera Shah, head of M&A, Buzzacott. She trained as an ACA with Smith & Williamson (now Evelyn) and has been a member of the Corporate Finance Faculty board since 2021.

Poppy McMullan, corporate finance executive, Buzzacott. She trained as an ACA with Simmons Gainsford and holds the ICAEW/CISI Diploma in Corporate Finance.

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