The VC gender gap
17 March 2020
The number of women founders and co-founders in Africa is on the rise, according to research by Venture Capital for Africa. In 2019 women entrepreneurs made up 18% of African startup founders. Although this percentage is low, it is substantially higher than more established startup hubs like Silicon Valley, where only 2.5% of venture capital backed startups have an all-female founding team.
According to Pitchbook, 2019 was a record year for all-female founding teams in America, they raised $3.3 billion in venture capital investments, representing a paltry 2.8% of capital invested across the entire U.S. startup ecosystem. The International Finance Corporation reports that from 2012 – 2017 only $30 million of VC investments went to female founders in Africa. Further, on the VC side, only 9 percent of Silicon Valley’s venture capitalists investing in tech startups are women.
So why is the venture capital gender gap a problem?
Women are the backbone of the African economy. The African continent has the highest percentage of women entrepreneurs in the world. According to the Global Entrepreneurship Monitor Women’s Report, the female entrepreneurship rate in sub-Saharan Africa is 25.9% of the female adult population, meaning that one in four women starts or manages a business.
Female entrepreneurs face multiple challenges to access finance, with an estimated $42 billion financing gap for African women across business value chains, including $15.6 billion in agriculture alone. Their challenges include:
- Finance: lending to women is seen as riskier, so they face prohibitive interest rates. In addition, women often lack traditional collateral and guarantees.
- Capacity: financial institutions lack data on women, as well as the capacity to understand and respond appropriately to women entrepreneurs’ needs and risk profiles.
- Business environment: in many countries, legal and regulatory frameworks hinder women’s full participation in private sector growth.
Empowering women and closing the gender gap are key to achieving the UN’s 2030 Agenda for Sustainable Development, particularly to achieve gender equality, to promote full and productive employment and decent work for all and reducing inequalities.
Governments and corporates alike are responding to this challenge, last week Google committed to train 20,000 African women in ICT and entrepreneurship by the end of 2020, as part of its Women Will training tour. Additionally, venture capital funds focused on female entrepreneurs, as well as female-led VC firms aim to unlock the value of female entrepreneurs by investing in them.
In February 2020, Ventureburn prepared a list of funders, who invest in African tech startup female founders. We hope to see the VC gender gap reduce in 2020 and beyond.