How Embedded Finance can unlock funding for female founders

Embedded Finance allows female entrepreneurs without a background in Wall Street or Silicon Valley to break into fintech, creating a new wave of founders who previously may have felt excluded from finance and technology.

Fintech has the potential to provide access to financial services to a wider range of people than ever before, but unfortunately the industry still needs to improve in different perspectives. Women represent 30% of the workforce and 12% of founders, according to research from FT Partners. Additionally, all-female founding teams received 1.9% of venture capital funding in 2022, down from 2.4% in 2021, according to PitchBook data.

To improve these numbers, venture capitalists need to diversify the industries in which they look for startup founders, and entrepreneurs need to explore opportunities to innovate in outdated industries and break into the male-dominated world of fintech.

Beyond the traditional

Venture capitalists have long overlooked women and diverse founders due to the industry’s social and racial homogeneity, perpetuating a cycle of male founders receiving the most funding.

Katie Palencsar, CEO of Anthemis Group, said embedded finance unlocked a group of founders whose backgrounds are very diverse, creating a new cycle of female leaders bringing more women into the fintech workforce.

The investment firm has seen thousands of pitches from female founders with backgrounds including sustainability, law, beauty and mobility, according to Palencsar. In 2021, Anthemis Group raised more than $700 million to invest in pre-seed through Series B embedded finance startups and early stage fintechs.

“We can get more women involved in fintech,” Palencsar said. “But not everyone is going to look the same on paper.”

Take Ami Kumordzie, founder of Sika Health, for example. In January, she raised $6.2 million in a round led by Forerunner Ventures as a black female founding physician with no technical experience. Kumordzie has developed a fintech platform to connect consumers with IRS-compliant merchants.

Unlike financial services, health care is a predominantly female-dominated industry, with women holding 76% of all health care workers, according to data from the US Census Bureau. When women use fintech to innovate in healthcare, they show other women the potential to create more financial services in their industry.

Network effect

By opening up fintech to entrepreneurs outside of finance and technology, investors expand their pool of potential startup founders and increase the likelihood of more capital being raised by women.

“Founders with less traditional finance or tech backgrounds are also hiring more women who didn’t necessarily think they wanted to be in fintech,” Palencsar said. “It creates this network effect.”

When women lead startups, there is a greater chance of attracting female talent. Companies with female founders build teams with 2.5 times more women, and companies with a female founder and leader hire six times more women than those led by men.

In addition, female founders with different experiences and backgrounds are well suited to build outside fintech’s oversaturated marketplace. This is critical to embedded finance as more business sectors look to expand their presence.

Greater market share

Embedded economics allows businesses to differentiate their offerings and tap into a wider customer base. In 2021, embedded finance will already reach $20 billion in revenue in the US alone, according to McKinsey.

This number is expected to grow significantly in the coming years as more companies realize the potential of this form of finance and consumer expectations for digital financial tools increase.

By leveraging embedded finance, businesses can create innovative products and services that provide customers with greater convenience and value. It also enables them to maintain a competitive advantage over other fintechs in the market.

However, capitalizing on the growth of embedded finance will require companies to diversify their workforce. It requires female leadership as researchers found that male-founded startups have less diverse teams compared to female-founded ones.

In that light, investors and businesses have a significant incentive to ensure that embedded finance unlocks funding for female founders.

Ultimately, misconceptions around fintech and biases in venture capital will perpetuate cycles of exclusion for investors and female founders.

To evolve, venture capitalists must look beyond traditional finance and technology and focus on investing in more women and diverse founders in adjacent industries.

By exploring solutions to the pitfalls of financial services in various industries, female business leaders can have a hand in pushing the fintech industry forward. With the right support, more female entrepreneurs will become a formidable force in the fintech space.

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