Header

Title

Women entrepreneurs are our best opportunity


Sub Title

On International Women’s Day, the female leaders of the EU bank argue that more investment in women entrepreneurs is the right thing to do socially and ethically. Women-owned firms also get great returns.


Summary

On International Women’s Day, the female leaders of the EU bank argue that more investment in women entrepreneurs is the right thing to do socially and ethically. Women-owned firms also get great returns.


Related Image

7d7d8696-fc87-412b-8f53-d6547c5c4057


Content

Simple Text (text)

(ltext)

By Teresa Czerwinska, Lilyana Pavlova and Gelsomina Vigliotti, Vice Presidents of the European Investment Bank

Locking women out of economic opportunities – either by not supporting their businesses or by ignoring their ideas and experience – weighs on overall economic performance and limits the innovation we need to tackle big problems like climate change.

We must put more emphasis on support for female entrepreneurs – and not just because it’s ethically and socially right to do so. The payoff is very much worth it. Providing women with equal opportunities could create $160 trillion in wealth from better use of human skills.

Female startup founders are a rarity in Europe. That is partly because women start fewer companies than men. While they represent more than half the population, women account for less than a third of entrepreneurs. Despite receiving less than half of the investment capital of their male peers, female-founded companies deliver twice as much revenue per dollar invested.

Women are particularly underrepresented in venture capital. Even when they do create a startup, women have trouble getting funding. Female entrepreneurs pulled in only a tiny fraction – 1% – of venture capital investment in 2021. The number isn’t much better across the Atlantic. Female entrepreneurs in the United States received just 2% of overall venture capital funds in 2021 – the smallest slice since 2016.

Diversity at the top of companies also improves financial results. Firms with strong female representation on their boards are 28% more likely to outperform their peers, while firms with gender-diverse executive teams are 25% more likely to outperform.

Concrete steps to support women

A study by the European Investment Bank’s Innovation Finance Advisory, Funding Women Entrepreneurs: How to Empower Growth, finds that venture capital and seed funding for women-led and -owned companies is gradually improving in the European Union. More women are also founding their own investment funds or working as lead partners in venture capital funds.

Europe continues to lag behind other world regions, however, in the share of venture capital and other private investment women receive.  The rate of entrepreneurial activity among European women is also low –   5.7% compared with an average of 11% in the rest of the world.

To catch up, radical change is needed. Addressing four key areas could radically improve women’s ability to start and fund businesses:

1. Increase the number of female fund managers and decision-makers in venture capital funds. The lack of female partners in venture capital firms and the dearth of investment funds run or managed by women are important obstacles. Only 5% of managing partners in EU venture capital funds are women, while women make up about 15% of general partners at US venture capital firms.

Venture capital firms with a female partner are three times more likely to invest in firms led by a woman. The Crowberry Capital Icelandic Venture fund was founded by women. A third of that money has gone to female founders. For its second fund, Crowberry Capital raised €76 million for early stage information technology and communications firms, €20 million of which came from the European Investment Fund and the European Commission.

2. Invest with a gender lens, by creating dedicated funds and financial instruments to support women’s entrepreneurship. Some of the barriers female entrepreneurs face are structural. For example, general partners are expected to pony up 1-3% of the capital in a new fund. Female investors may lack the deep pockets to make that kind of investment or to cover operating expenses before the fund starts to make a return. They may also lack the track record of their male colleagues, making it harder to raise funds.

3. Help women find the funds and technical advice needed to grow their business. Most women rely on their own savings and contributions from family members to found a business, which can radically limit their firm’s growth. Studies in France found that 10% of female entrepreneurs approach banks for support, about one-third fewer than male entrepreneurs. National initiatives like Enterprise Ireland, the Centre for the Development of Industrial Technology in Spain and Bpifrance provide funds for female-owned businesses at the early stage, but those funds can taper off as the business grows.

4. Support women entrepreneurs in sectors where they are severely lacking, such as in high-tech and science, technology, engineering and mathematics (STEM) fields. While the number of women working in research in Europe is slowly growing, women remain underrepresented as inventors in all technology domains, according to the She Figures 2021 survey by the European Commission. Their absence means that one of the most dynamic areas of economic growth – high technology and innovation – is evolving without taking into account the input, experiences or perspectives of half the population. The lack of female role models also has a profound effect on girls interested in STEM fields.

Less talk and more action

Sometimes simply shining a light on an issue will spark solutions. In 2019, the European Innovation Council set a target of improving the number of women-led startups that received funding under its Accelerator programme. By inviting more women to pitch their businesses and by increasing the number of female jury members to 50%, the Council upped the percentage of female-led startups that received Accelerator funding from 8% to 29%.

We have momentum. Europe saw a record number of successful exits – initial public offerings, buyouts or acquisitions – from female-founded startups in 2021. But we need to reach a critical mass of women breaking barriers, as high-tech entrepreneurs and as investors, to effectively push back against ingrained bias. We also need more data on the barriers women face so that private banks and governments can better support a level playing field.

Improving opportunities for women will not just open up new markets. It will enhance the European Union’s competitiveness and global standing while addressing a matter of social justice. Women aren’t treated equally, and yet they are society’s best investment opportunity. All evidence points to the advancement towards gender equality as having the potential to transform our economies. However, women are overlooked and underfunded. This is neither fair, nor is it smart. It’s high time to change that.