Women in Fintech Part 2: Is the VC Ecosystem Fundamental to Female Founders?

In the first part of the Women in Fintech series, we talked about how women are employed in financial technology companies, but not often promoted to leadership roles. In addition to the promotion gap, this piece will focus on whether and how women are financed within the venture capital ecosystem.

Is the venture side of fintech male dominated? If so, why not? Are there unavoidable factors responsible for the differences in the financing of enterprises between the sexes? Are there interpersonal barriers, or organizational, both or more? Let’s find out.

According to a study by Automatic Data Processing Inc. (ADP), the US financial industry has the second largest wage gap. Based on ADP’s research, the average wage for women in the banking and finance sector was $ 27 per hour in 2019, compared to an average hourly wage of $ 40 for men. The gender pay gap this year is $ 0.80 for every $ 1 men earn, the same as in 2021.

Research shows that women generally take less risk than men. Could this be the reason for the lower number of women-owned businesses? Studies further cited that women in general are less likely to ask and negotiate than their male counterparts in many, but not all, contexts. They are also known to be “more pessimistic when it comes to fundraising.”

Venture capitalists and financing

It has been found that venture capital firms prefer to fund pitches told by a male voice, and consider them to be more compelling, logical and fact-based compared to very similar pitches made by a female voice. Venture capitalists also use a gender-oriented language to describe and evaluate entrepreneurs, with men usually presented in a positive and leadership-oriented language. Another study found that venture capitalists asked men and women different questions. Men were often asked about the potential for profit, while questions for women were mainly focused on the potential for loss.

Another study found that multiple questions are asked of female and male founders as part of the same pitching process, emphasizing that venture capitalists ask men the questions that tend to indicate an advantage to them. Typically, female founders receive about a quarter of the funding they apply for, while their male counterparts on average receive half. Women are also underrepresented in venture agreements, with only 5.9% of US agreements involving female founding teams or solo female founders, and 15.2% involving mixed gender founding teams.

Moreso, venture capital raising is still considered a very masculine domain, which strongly and discreetly disfavor or does not support women. The venture ecosystem subconsciously or consciously uses the old patterns to recreate the historical examples of success. And therefore, female founders are seen as a risk or a threat, while their male partners are considered safe and profitable games. The VCs then finance more and more man-owned startups, and the cycle continues.

Although female venture capital firms are a beneficial addition to the system, they are usually small in size and few in number, making their impact on the overall gender gap almost minimal.

In the United States, about 11% of women are investment partners in venture capital firms. However, only 13% of the venture capital money goes to start-up with a woman on the founding team. A study conducted by Deloitte found that the average investment in fintech companies from 2015-2019 was $ 8 million for female startups, compared to $ 15 million for co-founded startups and $ 15.6 million for male-founded startups.

The figures appear to have stagnated over the past three decades, as the 30-year average for female founders’ share of venture capital funding was 2.4% in 2019. Almost identical to the 2.3% share in 2018, it fell to 2.1% in 2021, followed by a further fall, making it 2.0% in 2022.

Light at the end of the tunnel?

What can be and what is being done to remove these barriers to support gender diversity and equality in venture capital? Some figures show a slight change in the investment landscape. Nevertheless, the difference in funding, together with the under-representation of women in the founding category, is still a nagging stumbling block for women in fintech.

The venture capital sector should design and implement a standardized pitching and evaluation process for all founders, regardless of their demographic and gender profile. While making important decisions, venture capitalists should think about essential and transformative tips, such as whether or not to make Right investment. They should take a break and consider whether any bias affects their decision to invest in one company over another.

Numerous studies have shown that diversity leads to efficiency across all industries and around the world. Venture capitalists should therefore consciously include the diversity factor in their ecosystem, because it will ultimately multiply the effects, also known as the benefits. Previous research conducted by Deloitte found that with each woman added to the C-suite, there was a tripling in the number of women taking over leadership roles.

Things are starting to change, and as an eternal optimist, I feel they will continue to change for the better until this industry reaches a state of gender equality.

Reference points: Harvard Education and Deloitte Insights

See: BSV Global Blockchain Convention Panel, Blockchain Venture Investments: Driving Utility for a Better World

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