Explore the ScaleUp Annual Review 2023
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CONTENTS
Introduction 2023
Chapter 1 2023
The ScaleUp Business Landscape
Chapter 2 2023
Chapter 3 2023
Female founders: the challenges and opportunities
Much progress has been made over the past ten years in encouraging and fostering more female founders and leaders of scaleups. But there are still many barriers to overcome. We asked Alex Depledge MBE, founder and CEO of Resi; Sam Smith, entrepreneur and non-executive director; Judith Hartley, CEO of British Business Investments; and Sahar Hashemi, founder of Buy Women Built, to provide their perspectives.
Looking back over the past ten years, how much progress do you think we have made in encouraging and fostering more female founders and leaders of scaleups? What is needed next?
Sam Smith
While there is still so much to do, there is no doubt that we are making massive progress in growing the number of female-led scaleups and female founders. The numbers speak for themselves. In turn, this increases the number of role models and that helps to further increase the numbers. We now need to convene, celebrate and learn from this growing number of women to encourage others and look at how we buy from, fund and showcase female founders – especially across regions.
Alex Depledge
If you look at the number of women starting businesses, we have made a lot of progress. But if you look at the amount of funding that they get, we have made no progress. There’s a challenge across the funding continuum for women. Very few women go through an accelerator, or apply for grants, or raise angel capital. There’s a particularly acute problem that exists – for both men and women – when their businesses need growth capital.
Judith Hartley
Women make up around 50% of the general population yet only around 25% of high-growth enterprises include one or more women on the founding team, compared to around 75% with all-male founding teams. This is a huge disparity which doesn’t seem to be improving over time.
It also represents huge untapped potential in terms of female talent and economic growth. Of course, it isn’t something that will change overnight but the issue does need highlighting and a concerted effort is needed to change it.
That’s why I was very happy to join the Taskforce for Women-Led High Growth Businesses which was established in mid-2022. The objective of the Taskforce is to increase the number of women-led high-growth enterprises in the UK, with a particular focus on regions outside of London. The Taskforce will build upon the work of existing initiatives and organisations focused upon this issue.
In your view, what is the single biggest barrier that women face in growing and scaling their businesses?
Judith Hartley
It’s impossible to pick just one thing! There’s a whole range of intertwined barriers which, in combination, make it very difficult for women looking to scale their business.
Despite some improvements in recent years, women are less likely than men to start a business in the first place. This is due to a variety of factors including lower confidence around starting a business compared to men plus less willingness to take risks. Women also tend to shoulder more caring and childcare responsibilities. In addition, women tend to have less access to other female founders and mentors, who can act as role models. They also have less access to business networks where they can find help as they seek to start up or grow their business. Finally, access to funding for women-led high-growth businesses is also a big issue.
Alex Depledge
I speak to about 200 female founders a year and the questions I am often asked are: how did I handle maternity leave, and which is a good fund for women to approach? Funding and childcare are the two biggest problems stopping women from growing successful businesses. The childcare issue is huge for all women in employment and is even bigger for women who start businesses. The evidence demonstrates that there are just fewer women at every stage but at the stage of raising growth capital there’s a 305% difference between men and women.
Sahar Hashemi
When we ask our Buy Women Built community about the one thing that is keeping them awake at night, it is raising finance. The wider economic conditions are very difficult with rising costs and decreased consumer spending and everyone tells me that it is very hard to raise money at the moment. But their other major priority is access to markets – more than half of them are trying to build their direct-to-consumer business and want to get their brands in front of consumers.
Sam Smith
My personal view is that this is about networks and funding. Having the ambition to grow and scale comes from understanding the financial landscape and being able to access the tools needed to grow across markets, talent and funding.
The average deal size of VC investment for female-founded scaleups is half that of their male counterparts, and female founders consider themselves more likely to be turned down. Why is this, and how can it be addressed?
Alex Depledge
One part of the OECD definition of a scaleup is a company that is growing revenues at 20% year on year, yet VCs and private equity are not funding that level of growth. You need to be growing far faster than that for a VC. A private equity investor will invest in a 20% growth rate but requires profitability. There’s a gap where you can’t raise VC but you’re not big enough for private equity. We should be looking to develop new financial instruments that would be aligned with the needs of these types of growth businesses. One route that could be leveraged more are the VCTs.
Judith Hartley
Venture capital is critical for scaling innovative companies and despite some progress recently (for example, the share of equity deals to all-female teams has increased from 5% in 2011 to 9% in 2022), all female-founded teams in the UK received just 2p per £ of total equity investment in 2022 and this has been the case for many years. Even where female-led teams can raise VC funding, they tend to raise much less than their male counterparts and are also less successful with subsequent raises.
Why is this? Female founders tend to be less aware of equity finance and where to go to get it compared to their male counterparts; they also have lower access to sponsors/supporters who will introduce them to VC firms and other funders; and finally, there is also evidence of some gender bias amongst key decision-makers within VC firms.
In its Finding What Works. Pathways to Improve Diversity in Venture Capital Investment report, the British Business Bank identified three actions that VC firms can take to help address this diversity issue: promote diversity at the top; foster inclusion in the investment pipeline; and embrace transparency and accountability.
Encouraging more Limited Partners and fund managers to sign up to the Investing in Women Code would also help! The Investing in Women Code is clearly making a difference, as signatories to the code are significantly more likely than non-signatories to invest in teams with at least one female founder.
Sam Smith
I think this is partly around thinking big. With few role models it isn’t always easy to see how you can really superscale, so we need to demystify financial jargon and make the financial sector more female-friendly and accessible.
Is the imbalance in the number of female founders – and in their funding – shared across all sectors? Do you perceive any sector leaders or laggards?
Sam Smith
There are sectors that are definitely more prevalent for female founders with the laggards around technology in particular. Consumer is always a sector leader for female founders.
Alex Depledge
Women typically start businesses in sectors that don’t necessarily attract VC funding, such as health, lifestyle and education. Women tend to build businesses in areas that they enjoy and know. They also develop their businesses slightly differently, tending to grow them more slowly and be more focused on profitability. But money doesn’t flow into these female dominated sectors. VC capital flows into SaaS businesses – and there aren’t many women developing b2b SaaS businesses.
Judith Hartley
It’s across all sectors. The ‘craft industries’ sector has the highest proportion of all female or majority female founders but even here founding teams with at least one female founder still make up less than half of total firms.
Sahar Hashemi
Our Buy Women Built community is focused on consumer goods but they are broadly balanced within that sector – from food and drink to fashion to health and beauty. And it is nationwide; we started out in London but half of our members are from outside London.
What steps can be taken to increase the number of female investors – whether as angels, or within the professional investment community?
Sahar Hashemi
At Buy Women Built we have just started an investment group among our exited founders who are now investing. They are focused on the consumer goods sector.
Alex Depledge
I do see more female networks and more female investors but the pipeline is still quite small. We haven’t yet moved the dial. It is happening but, objectively, those leading indicators are not driving the lagging ones yet.
Many females on investment teams still tend to be in more junior positions; as yet there are just not the numbers of female partners and yet that is what makes the difference. The people who can make a difference are the LPs and I think they should be mandating more women investors to be deploying their funds.
Sam Smith
This takes culture change at the top – being a signatory to the women in finance charter is a good start for both the GP and the LPs in the investment community. We need to encourage and then follow and promote the progress of female angel networks across regions.
Judith Hartley
There are initiatives already underway to try and encourage more females to become investors. For example, the Women Backing Women campaign, led by the Women Angel Investment Taskforce and driven forward with the tireless work of the UKBAA, has been a hugely welcome intervention to increase the number of female angel investors. Their research has shown that growing the number of female angels will directly increase the level of investment in female entrepreneurs.
Increasing diversity within investment teams, and in particular investment committees, is also important. Research shows it leads to better investment decisions and fosters better communication with diverse founding teams.
What progress is being made on improving access to markets for female-founded scaleups?
Sam Smith
This is an area that needs a lot of work. It is much easier to grow your business with new revenue and customers rather than raising money. Procurement for female-led businesses could change the game here, such as looking at diversity targets for all procurement budgets and possibly having a procurement charter for female-led businesses that would encourage – rather than mandate – where companies buy from.
Specific measures can be taken to support the international growth ambitions of female-founded scaleups, such as more trade missions and more proactive engagement both at national and local levels.
Sahar Hashemi
Introducing quotas such as exist in the US could be huge. The US federal government aims to award a minimum of five per cent of all its contracting dollars to women-owned businesses each year. In the US, a company that is at least 51% woman-owned and operated can be certified as a woman-owned business – and that opens doors to other resources that can help their business grow.
63% of our Buy Women Built are exporters. There’s a lot more education that needs to be done – how to make the most from international trade shows, knowing what support is available from the Department of Business & Trade.
Alex Depledge
This is not just a female problem. Corporates want suppliers that have credibility and scale in their market, that’s what it comes down to. Upstarts and innovative businesses – which may be founded and run by women – can find it really hard to get into these supply chains unless they have the support of an activist within a particular corporation.
How important are mentors, coaches and role models in helping to grow the number of female-founded scaleups and how can such support be amplified across the country?
Alex Depledge
We have been aided by a lot of people and so we in turn should make sure that we inspire and encourage the next generation of female entrepreneurs. But I don’t think this is something that should be gendered – some of my best mentors are men.
The media has a part to play. If we want to show the rich tapestry of female talent then many more women need to be shown in credible media outlets.
And we need to be much more concerted in our efforts to build up our management skills. If we want to build big British-owned, British-run companies, then we need to do a lot more to build up our leaders by investing in executive coaches and formal mentorship networks. If we could officially harness the power of all our networks and join them all up, that could be incredibly powerful.
Sam Smith
This is such an important part and makes a difference to very early stage thinking about career choices as an entrepreneur as well as aspirations about whether you can get to the CEO role. This needs to start early and in primary schools – a very high percentage of 11-18 year olds cannot name a single female entrepreneur and this needs to change to drive ‘you can’t be what you can’t see’ .
Judith Hartley
Mentors, coaches and role models can help open doors for female founders, providing new pathways into the equity finance networks. In doing so, they can help give female founders the confidence, information, and relationships that will help them secure the investment they need to scale. Having access to mentors and role models is even more important in parts of the country where access to equity finance is thinner, for example, outside of London.
Strengthening venture capital markets outside London is therefore key, and in this regard, the British Business Bank is currently rolling out its £1.6bn Nations and Regions Investment Funds to drive more finance – particularly equity – to small businesses across the breadth of the UK. Diversity considerations have been integrated into the heart of these funds, and as these markets grow and develop, we would like to see more female founders and investors connecting with each other to establish supportive, effective networks for female founders.
CONTENTS
Introduction 2023
Chapter 1 2023
The ScaleUp Business Landscape
Chapter 2 2023
Chapter 3 2023
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