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, such as 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 $160tn in wealth from better use of human skills.
Female start-up founders are a rarity in Europe. While they represent more than half the population, women account for less than a third of entrepreneurs. And yet, 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 (VC). Even when they do create a start-up, women have trouble getting funding. European female entrepreneurs pulled in only a tiny fraction — around 1% — of VC investment in 2021. The number isn’t much better across the Atlantic: female entrepreneurs in the US received just 2% of overall VC 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 VC and seed funding for women-led and -owned companies is gradually improving in the EU. More women are also founding their own investment funds or working as lead partners in VC funds.
Europe continues to lag behind other world regions, however, in the share of VC and other private investment women receive. The rate of entrepreneurial activity among European women is also low, at 5.7% compared with an average of 11% in the rest of the world.
To catch up, radical change is needed. Addressing key areas could radically improve women’s ability to start and fund businesses.
First, increase the number of female fund managers and decision-makers in VC funds. The lack of female partners in VC firms and the dearth of investment funds run or managed by women are important obstacles. Only 5% of managing partners in EU VC funds are women, while women make up about 15% of general partners at US VC firms.
VC firms with a female partner are three times more likely to invest in firms led by a woman. The Crowberry Capital Icelandic Venture Fund, for example, was founded by women and raised $40m. A third of that money has gone to female founders. For its second fund, Crowberry Capital raised €76m for early stage information technology and communications firms, €20m of which came from the European Investment Fund and the European Commission (EC).
Second, 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.
Third, 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 launch a business, which can radically limit their firm’s growth. Studies in France found that 10% of female entrepreneurs approach banks for support, which is about a third fewer than male entrepreneurs. National initiatives such as 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.
Fourth, support women entrepreneurs in sectors where they are severely lacking, such as in 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 EC’s She Figures 2021 survey. Their absence means that one of the most dynamic areas of economic growth — high-tech 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; more action
Sometimes simply shining a light on an issue will spark solutions. In 2019, the European Innovation Council (EIC) set a target of improving the number of women-led start-ups 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 EIC upped the percentage of female-led start-ups 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 start-ups 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 EU’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 smart, and it’s high time to change that.
Teresa Czerwinska, Lilyana Pavlova and Gelsomina Vigliotti are vice-presidents of the European Investment Bank.
