Gender Equity: Unfinished Business For Startups

The representation of women in India, across every domain, has been constantly increasing, but the corporate world is not making as much progress as startups. In this aspect, the former should replicate the latter's structure. According to the Women in India's Startup Ecosystem Report (WISER) 2023, in India, both setups have a similar participation of women at the entry level: 38 per cent in startups and 37 per cent in corporates. Surprisingly, startups outpace corporates when it comes to women in senior roles. Startups have around 32 per cent of women in managerial positions and 18 per cent in founder/CEO positions. Contrary to this, the figures for the same positions in corporates are 21 per cent and 5 per cent, respectively. Clearly, startups perform better in maintaining gender diversity. 

Despite the winning figures compared to corporates, startups have a long road ahead. As the WISER data concludes, women-led startups perform better in terms of women's representation across functions. Women founders are more acutely aware of barriers for women, including safety and care responsibilities, and are consequently more likely to introduce policies to address them. 

"There is still much work to be done to further empower and encourage women to pursue entrepreneurship and bridge the gender gap in entrepreneurship. More importantly, as women are major purchasers, they understand the customer's needs well and are best suited to start and build businesses," states Indian Angel Network Co-founder Padmaja Ruparel. 

Startups with at least one female founder have 2.5 times more women in senior roles than male-founded startups and rank higher in gender parity. "This creates a virtuous cycle, where a woman founder tends to hire more women and has more women in the decision-making process, who, in turn, tend to hire more women," opines Seafund Managing Partner Mayuresh Raut. 

 Funding Figures 

Since more female leadership brings more inclusivity, let's see what reports highlight about the status of women-led startups, women founders and their funding. From 6,000 startups in 2017 to over 80,000 startups in 2022, the number of startups rose over 1200 per cent. Meanwhile, startups with women founders increased only by 8 per cent, from 10 per cent to 18 per cent. 

"This uptick in women-led startups can be attributed to several factors. Enhanced access to funding and a growing network of women entrepreneurs providing mentorship and resources have collectively contributed to this rise. Additionally, societal shifts towards recognizing and valuing diversity in business leadership have encouraged more women to embark on entrepreneurial ventures," says Green Frontier Capital's Founder and Co-managing Partner Sandiip Bhammer. 

When there's a sharp decrease in funding, do all startups suffer the same? In 2023, Indian startups faced challenges as overall funding hit a seven-year low, falling to the levels of 2017. Across different sectors and funding stages, many women-led startups struggled to attract venture capital. This was also a global issue, with female founders facing challenges in securing financial backing due to gender stereotypes and a lack of role models. 

According to a Statista report, in the US, startups with at least one female founder received 26.1 per cent of the venture capital in 2023, while all-women teams received less than 2 per cent of the total funding. Even in a year with high venture capital investment, female-led startups in the EU only raised 2 per cent of the funding. Clearly, it is a global trend. 

In India, women-led startups secured over USD 480 million in 2023, an 80 per cent decline from the previous year's USD 2.4 billion. Moreover, the number of deals for women-led startups decreased by more than 50 per cent, from 238 in 2022 to 118 in 2023. Out of the USD 10 billion raised collectively by Indian startups in 2023, 5 per cent was obtained by women-led startups, a decrease from the previous year's USD 2.4 billion, which accounted for 9.6 per cent of the USD 25 billion funding. 

The years 2021 and 2022 were an anomaly. Following the pandemic, governments and private players pumped large amounts of money to keep economies afloat. A lot of that money found its way into the Indian startup ecosystem. "This flood of money lifted all boats. In 2023, there was a dramatic shift in investor sentiment, largely driven by the withdrawal of quantitative easing and rising interest rates. There was no lack of dry powder, but the growth rates of startups fell starkly. As a result, investments across the board fell, and women-led seed startups also bore the brunt," explains Raut.

Read Between The Lines 

Fundraising for female founders is more challenging than it seems. When we talk about gender discrimination while raising funds, there are subtle differences in the interactions between a woman founder and an investor compared to a male founder and investors that can affect the outcomes. We are privy to these differences; we cannot directly see or hear them. 

A psychological theory called 'Regulator Focus' comes into play here. It differentiates between two distinct motivational orientations of promotion and prevention. A promotion focus is concerned with gains and emphasises hopes, accomplishments and advancing needs, while prevention focuses on losses and emphasises safety, responsibility and security needs. 

Over the last three years, women's share in funding has been declining. What if this has nothing to do with the fundamentals of the business? According to experts, it is likely due to a simple difference in the questions they get asked. Entrepreneurs need to convince investors of their home run potential to raise funds from VCs. Zooming in on the core cause, most of the gender discrimination experiences involve prevention as opposed to promotion-oriented dialogues. Evaluators have an unconscious bias favouring men over women entrepreneurs. For context, a promotion question looks like this: "How many new customers do you plan to acquire this year?" A prevention question sounds like this: "How do you plan to retain your existing customers?" 

Sharing her experience, HerKey Founder and CEO Neha Bagaria says, "The VC community has such a high percentage of males compared to female investors. That is why it becomes difficult to convince them." She goes on to say that there is a big difference in the language between male investors and female founders. Most of the time, investors are speculative about the projections and claims made by female founders. 

"Women must also realise and change their language and communication to crack these deals. While we also need to start ensuring that we get more women in the investor community itself," she added. 

Most claim that after a firm reaches the growth stage, gender discrimination has little influence on financing decisions. A company's growth rate and scaling capabilities will then be the most important criteria. However, this does not correspond with the growth-stage funding, especially in 2023. Early-stage women-led startups received the lowest funding last year, just over USD 56 million. In contrast, growth- and late-stage businesses received USD 198 million and USD 189 million, respectively. Many female founders and investors want to understand the prevalent sexism across different regions. 

"Many young women face personal questions while raising funds, including whether they will relocate or scale down their business after marriage. Women do have multiple responsibilities, both at home and at work. And sometimes, investors worry about the focus the woman could actually give to the business, despite their intent," Ruparel highlights. 

By this stage, any initial concerns about a woman's leadership skills, risk appetite and need for a work-life balance have generally faded, and investors are more open to diversity and inclusion if a business is performing well. According to the WISER report, in 2017, about 8 per cent of the total unicorns were women-led; in 2023, India had 17 per cent of total women-led unicorns. 

 Road Ahead 

Union Minister Smriti Irani criticised venture capital funds for not adequately supporting women-led startups. "The bottleneck is those people who sit as VCs in financial institutions, who don't want to take the chance with women failing and are okay with men failing, even when the ratio of men failing is higher," says Irani. 

The government is introducing programs to support women entrepreneurs. In 2022, the Department for Promotion of Industry and Internal Trade announced that 10 per cent of the SIDBI-operated Fund of Funds for Startups Scheme would be reserved for women, totaling Rs 1,000 crore. This aims to increase cash flow through debt and equity. On similar lines, President Droupadi Murmu introduced the platform "Her Start" to support seed-stage ventures run by women entrepreneurs. Moreover, in 2017, NITI Aayog launched the Women Entrepreneurship Platform (WEP), which aims to nurture a supportive ecosystem by providing access to incubator and accelerator programs, skilling and mentorship, marketing assistance, funding and financial support, and community and networking opportunities. 

Including more women in VC firms and decision-making roles can lead to fairer funding decisions. Creating more funds, specifically for women-led startups, can offer the necessary financial support and resources. Expanding access to mentorship and networking can help women entrepreneurs navigate the startup ecosystem more effectively. 

Investors in VC firms should set clear and measurable goals for promoting equity, treating them with the same importance as any other strategic objective. Experts suggest that these goals should be included in their commitments to their investors, who should then start appreciating diversity in the fund's leadership teams and the proportion of women-led startups in their portfolio with a higher level of fundability. Investors should have the metrics to encourage and incentivise investing in women-led startups.