Author: Stephen Page

“As much as starting a business is not an easy choice, we should do more to fight the stereotype that entrepreneurship is not a female career. We need to show more examples of successful businesswomen and female-led businesses to inspire younger generations”

Investors must show more than just good intentions if we’re to realize the full potential of female-founded startups. It is well known that, in the UK, for every £1 of VC funding, female-founded businesses receive just 1p. Worse than that, for the last 20 years only 10% of venture funding has gone towards businesses that even include a woman anywhere in the founding or leadership team. This is a terrible statistic, especially when it’s also been shown that female-founded businesses generate around 78% return on investment compared with 31% for start-ups founded by men. The industry has launched countless initiatives in recent years to encourage more funding into female-founded businesses, from dedicated accelerator programs to office hours aimed at expanding investors’ and founders’ networks and allowing women to get a foot in the door. Yet nothing seems to be working. In fact, in Q3 of 2020 funding into female-founded businesses dropped to its lowest level in three years.

Fighting Stereotypes

As part of Investing in Women Code we collect data to better understand the reasons behind the underrepresentation of female founders. Although it is still a work in progress, we can confidently say that more male-led than female-led start-ups approach investors. As a result, the chances are that male-led start-ups receive funding more often. This might be because, in our culture and mentality, entrepreneurship is not seen as a career for women, as a consequence of which young women are not encouraged to take this direction.

As much as starting a business is not an easy choice, we should do more to fight the stereotype that entrepreneurship is not a female career. We need to show more examples of successful businesswomen and female-led businesses to inspire younger generations. They need to see that entrepreneurship is an option they can prepare for.

Over-Incubated And Over-Advised, Just Invest

With that in mind, there are many laudable programs out there that are designed to give women advice and support on seeking funding, all of which do have a role to play. However, we have to ask the question of whether we need all of them, and whether they are having the desired effect? In fact, recent research has shown that in some cases accelerators actually exacerbate the equity funding gap between male- and female-founded businesses.

Instead, investors need to commit to actually investing into female-founded businesses. Women are perfectly capable of identifying a problem on their own, creating a solution, and drafting a pitch deck. This is not knowledge that is kept secret from them. Rather than burying female founders under mountains of advice, we just need to ensure that they are being encouraged to start businesses in the first place, give them a fair chance, and back them.

“Women are perfectly capable of identifying a problem on their own, creating a solution, and drafting a pitch deck”

“…mantra should always be, if you are a good company, with a strong team, and strong proposition, and have realistic expectations, there is a high chance you will secure investment”

For example, at SFC Capital in 2020 we took the conscious decision to ignore often ineffective programs, office hours, and accelerators, and instead made a public pledge to invest at least 50% of latest fund into female-founded companies. This has resulted in us investing in some truly ground breaking companies such as ETIQ, Esther, Jack & Bry, and many more.

We haven’t lowered our quality bar, and we haven’t passed on other deals. The mantra should always be, if you are a good company, with a strong team, and strong proposition, and have realistic expectations, there is a high chance you will secure investment.

The First Step is the Hardest

Although an industry-wide problem, we believe that setting ourselves high targets at the seed stage, even if we fall slightly short, starts to make a difference in the wider industry. Securing early-stage investment provides companies with the capital and tools necessary to go on to secure further funding and expand their businesses. By working hard to achieve better gender balance at the earliest stage, we can change the long-term fortunes of many female-founded companies. For example, without seed investors we would not have many of the successful companies like Onfido, or Transcend Packaging that we see today. By investing in women now we can see global companies founded by women in the future, and ensure the successes of future Whitney Wolfe Herds aren’t as exceptional as the recent Bumble IPO was held up to be.

“By investing in women now we can see global companies founded by women in the future, and ensure the successes of future Whitney Wolfe Herds aren’t as exceptional as the recent Bumble IPO was held up to be”

“Female founders do not need any more ‘how to’ sessions. They need action, and proactive investors willing to look at the opportunity their business represents, rather than their gender”

Unfortunately, we did not quite hit our 50% target for this fund. However, simply through being proactive and issuing the public statement, we saw significantly more female-founded companies proactively approach us for funding – evidence that there are plenty out there who deserve it. This has meant we have invested in significantly more female businesses than the market average, and we hope this number will only increase as word continues to spread.

It is clear that if the investor community keeps doing what it has been doing for the last few years, nothing much is going to change. Female founders do not need any more ‘how to’ sessions. They need action, and proactive investors willing to look at the opportunity their business represents, rather than their gender. By taking these first steps, we can make the start-up ecosystem more representative of our society, and also create some incredible companies along the way.

“The pandemic has really highlighted the resilience and ability of the best entrepreneurs”

When the virus first arrived, we were incredibly concerned. Our company SFC Capital has a portfolio of about 200 companies; and so, March and April were worrying months. Were investors going to stop investing? Would our company survive? But it soon became clear that the problems were going to be focused on certain sectors, namely travel and hospitality, while big opportunities were opening up for companies involved in other businesses, such as delivery and remote working. Some of our portfolio companies had a very tough time; but some thrived, and a dozen or so witnessed their revenues shoot through the roof – including a flower delivery business, a company that makes kits to upgrade pushbikes to electric, and a sustainable packaging company that transitioned to producing recyclable PPE. Before the virus, they were supplying paper straws to McDonald’s, so their story is a good example of innovation. The pandemic has really highlighted the resilience and ability of the best entrepreneurs. So far, we have not lost a company, some have flourished, while others have hunkered down and waited.

Good entrepreneurs can pretty much survive a nuclear war – they will be able to pivot, transition, rally their team, adapt. They are people-centric, which is hugely important. When we assess companies to invest in, we always look at how the CEOs and leaders interact with their employees, how they behave together in the bunker, so to speak. Are they all pushing in the same direction? The virus has stoked a kind of war-time spirit and the best entrepreneurs are making sure their companies are coming out the other side stronger.

As an early stage investor, at SFC Capital we use a marking matrix to guide us, 50% of which scrutinizes the CEO, leaders, co-founders, and team of each company. How do they come across; how do they behave? Have they got their finger on the pulse? If there is only one founder, they are really up against it from day one; it’s a negative in many ways, but we certainly do not exclude them. Sole founders need to be seriously good for us to invest in them. We are looking for that real spark. We do psychometric testing, we have lots of discussions with them, we see how they respond to our questions on due diligence, and we do a deep dive on each company. If we do decide to invest, later when we are considering whether to reinvest, we re-evaluate them, check their resilience and perseverance, have they built a good team? These are important factors to consider.

“Good entrepreneurs can pretty much survive a nuclear war – they will be able to pivot, transition, rally their team, adapt”

“The virus has stoked a kind of war-time spirit and the best entrepreneurs are making sure their companies are coming out the other side stronger”

Quite often, we are presented with a brilliant idea but the team is lacking. I would rather have a great team with an average idea than an average team with a great idea. A great team will forge something even during the toughest times. One of SFC capital’s first investments was an identity verification company called Onfido. When we invested, they had no revenue, the product wasn’t really there, but the team was so exceptional that we knew it was going to be something special. The company is now worth more than £350 million. It is all about the people.

Remarkably, during the pandemic, valuations have not gone down. People generally tend to overvalue their businesses – how can a company with zero revenue, that is three months old, be worth £2 million? We see crazy valuations like this all the time. I do believe that the pandemic is potentially a good thing for entrepreneurship. We are going to see a lot of people out of work when the furlough scheme in the UK comes to an end. There should be no shortage of startups. The UK is a very entrepreneurial country; but it also probably means we will see some people who should not be entrepreneurs trying their luck coming to the market and demanding corporate salaries.

For budding entrepreneurs in the times of Covid, and even generally, I would advise:

Ø If you don’t have a co-founder, get one. It is extremely difficult going it alone. If you find someone who is compatible with your vision it takes a great deal of pressure off.

Ø Take time to work out a detailed plan and don’t rush things. Be clear when you talk to your potential investors – don’t assume they know anything. Investors tend to be generalists, so you need to be clear.

Ø Don’t overvalue your company. High valuations can destroy companies for so many reasons, not least because it will take so long to source enough investment that you run the risk of someone stealing your idea in the meantime.