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However, how many of these businesses are able to scale and reach a point of exiting? We wanted to, therefore, look at the raw exit data of businesses with a female founder in the past 10 years to identify how much of an issue the gender gap on scalability still is today and how long it might be until we see improvements in this dataset from the current work that is being done.
The proportion was smallest in Europe and RoW, with both at just 0.35%, compared with 1.37% in the US. This reflects the staggering gender disparity and reinforces the need for more female founders and greater access to funding and advice to enable those businesses to scale and reach these later stages, which we comment on in more detail below. Despite far fewer exits for females, female and male-founded businesses have followed a similar trend over time.
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The top two sectors of businesses exiting in the 10-year period were TMT and Industrials for male-founded and TMT and Consumer for female-founded. Given that women drive 70-80% of all consumer-making decisions through a combination of their buying power and influence, it is pleasing to see this reflected in the founder profile of this sector. As referenced here.
The Consumer concentration was, however, a likely driver behind why the number of exits fell by 11% in female-founded companies between 2019 and 2020 compared with an 11% increase in exits of male-founded companies, given that the Consumer sector was more significantly impacted by the pandemic than others.
Unsurprisingly, the average transaction value differs considerably from sector to sector. We looked more closely at the sectors in which female founding exits are most prevalent, TMT and Consumer. The average value of exits in the Consumer sector was 18% higher in male-founded companies. The disparity in the TMT sector is starker, with male-founded exit values averaging 1.5 times higher than female.
The disparity in values may be due to a variety of reasons, including female founders exiting at an earlier stage, but one known issue is the challenge women face in achieving equivalent higher valuations compared with male counterparts. This issue is two-fold and interrelated: 1. The need for a more diverse representation at investor and advisor firms; and 2. Support and advice are needed to guide female founders to be more confident in the ask.
Though the data shows we're yet to see a vast improvement in the exits of female-founded businesses – both in number and value – change is building. We should celebrate the progress in which brilliant organisations such as The Rose Review are reporting evidence of progress while allowing our findings to underscore the need for continued, persistent focus in supporting female-founded businesses from start-up to scale-up and eventual exit, including the fundraising stages often involved in that journey.
While numerous diversity-focused funds have been set up, female founders are still struggling to gain equal access to venture capital. One of the reasons could be the lack of diversity in Venture Capital and Private Equity teams and leadership, which is now beginning to evolve into a fairer, more equitable investment industry. Organisations such as the British Venture Capital Association (BVCA), who are partnering with the likes of Level 20 (An organisation focused on increasing the percentage of women in senior leadership in European private equity), The Rose Review, and Diversity VC (a diversity-focused Venture Capital fund), are working to hold member firms to a higher standard of diversity and highlight the continued issues. The BVCA’s 2023 Diversity and Inclusion Report found that the number of women in senior investment roles across all firms included in the study was just 11%, and 48% of the firms had all-male investment teams.
Whether or not businesses choose to take on capital as they scale, they will need access to support and advice throughout their growth journeys. The Rose Review research has shown that in the 16 to 24-year-old age group, there has been a fivefold increase in young women starting businesses compared to 2018. As these companies look to scale, their support systems being a combination of female founder member clubs, forums, and events, and the ability to access advice will be crucial.
There is a myriad of wider issues, including childcare responsibilities falling principally on females, which we haven't explored in this article and that require policy-level decisions to be made in addition to organisation-level attention. However, change is happening elsewhere: Forbes reported that women-led start-ups have more than doubled since COVID. While the 2022 Scaleup Institute Female Founder Index’s research showed that the number of visible female-founded scaleups has increased by 34.5% since 2020, with a 41% increase in aggregate turnover to £14bn, attracting £5bn in investment.
Overall, despite frustratingly small shifts in female-founded businesses in the last decade, particularly in the arena of exits, the work to change this by enhancing founders’ ability to scale towards an exit has begun, and the first benefits of this are starting to be felt. As more female founded businesses are started and scaled, with the right level of consistent change over time, we hope and believe that the next 10 years of data will show a more positive picture as the impact of change starts to filter through.
Data sourced from Capital IQ using multiple search criterion, including a strict female founder filter (not including female leaders)
If you would like to speak to one of our experts to find out more, please get in touch via the form below.
1 June 2023
Corporate finance
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Meera Shah
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