The Chancellor’s U-turn on angel investment rules was a good start, but men are still 48 times more likely to secure VC funding than women and the needle is barely moving, says Emma Sinclair
With little fanfare, a law came into force at the end of January that provided yet another blow for women-led businesses trying to source funding. As if the odds weren’t already stacked high enough, changes to the so-called sophisticated investor rules meant that individuals investing via an angel network or platform must earn more than £170,000 to qualify, increasing from the previous level of £100,000.
Female led businesses only receive 2% of venture capital investment according to the British Business Bank, and therefore rely disproportionately heavily on angel funding as a key source of capital.
This new law therefore directly and negatively affected the already near-impossible task for women trying to raise funds for their business. By attempting to tell investors what to do with their money, the government erected yet another barrier to female entrepreneurship.
After weeks of furious lobbying and pleas to see sense, the chancellor announced a reversal to the law in the Budget, meaning it was applicable for little over a month. This represented a rare win for women running their own business.
If the CFO or COO of my company, both men, walked into a room of investors, they are 48 times more likely to receive funding than I am. It is an understatement to say we need action to fix this as the system as it stands does not work. Reports, reviews, taskforces, committees, panels and action-plans all highlight the problem and suggest variations of the same solution… but the needle is barely moving.
There have been endless attempts to address the problem. The Rose Review of Female Entrepreneurship, launched in 2019 by the former RBS chief executive, “shed renewed light on the barriers faced by women starting and growing businesses”. Speaking for myself, we are now well past needing to shed light on a problem women live every day.
The Investing in Women Code is another UK initiative which publishes an annual report on its progress. Its well-meaning aim is to improve “female entrepreneurs’ access to tools, resources and finance from the financial services sector”. There is support out there if you want it and no shortage of statistics about how severe the problem is. But genuine progress or solutions are hard to identify.
The system is broken and has been for decades. Despite compelling evidence that female-led businesses generate better returns for investors – Morgan Stanley estimated in 2019 that $4.4 trillion is lost in missed revenue for women and minority-owned business enterprises – there will be no change with the status quo. For anyone in government or investment, this is nonsensical and economically illiterate: Up to £250 billion of new value could be added to the UK economy if women started and scaled new businesses at the same rate as UK men, according to government figures.
The venture capital industry is not investing in women and has not done for decades and any change is glacial. At the current pace, by the time I die, female-led teams might get 5% of VC funding. That’s not good enough.
That is why reversing the sophisticated investor rules should just be the start: My view is any change to the funding prospects for female founders must come from the bottom up and angel investors and private individuals are a significant part of that.
On this International Women’s, I am going to call it Investing in Women Day because that is what female entrepreneurs really need.
Emma Sinclair is CEO and founder of EnterpriseAlumni