Female Startup Funding: Challenges And How To Overcome Them

India is the world's fastest-growing economy, and women have paved the way for it, some by taking the leading roles, others by working behind the scenes.

The female employment participation rate in India is rather low at 24 percent, but it hasn't deterred women from following their ambitions. Women know how to use their vision to innovate and their willpower to undertake enterprising startups. Aside from the tenacity and fortitude that contribute to a successful start-up, women also require financial resources to keep the business thriving. According to a Bain & Company report, India's women-owned businesses will account for 13.5–15.7 million in 2020, or 20% of all businesses but female entrepreneurs typically struggle more than their male colleagues to acquire recognition in the business sector, despite their efforts and skills.

One of the first obstacles aspiring female entrepreneurs face is a lack of role models in their community. We as species live by examples, and without representation, it is hard for any individual to visualize an opulent business. Venture capitalists prefer to invest their time, effort, and money in businesses that have been tested or with which they are familiar. Over time, this creates an impenetrable echo chamber of deal flow and founders.

When women are the mentors and coaches in the business community, trust, money, and resources are more inclusively allocated and things start to turn around. It shouldn't be any more difficult for female entrepreneurs to have access to these resources. They also have difficulties finding female mentors and coaches who can help them grow and give constructive criticism.

Another major issue for female entrepreneurs in India is the lack of access to professional networks. According to the Google-Bain poll, female company owners are less connected with both official and informal networks. A reason why networking takes a backseat for women is that men enjoy five hours more leisure time per week than women, making the networking arena male-dominated. As a result, women tend to miss out on opportunities to expand their company, meet partners and vendors, and develop social capital.

Nine out of ten decision-makers at venture capital companies are men, which might influence how a pitch or idea is regarded if the issue does not affect the people present in the room. On the other hand, increasing access to wealth creation for women with the skills, experience, and cash to be investors is a question of promoting diversity in venture capital. Women make up less than 2% of angel investors, while just 7% of VC firm partners are female. Women in key decision-making roles at investment companies are critical to a gender-inclusive startup ecosystem.

Securing finance for a small firm is yet another barrier for women entrepreneurs. The problem is two-fold in this case. The traditional banking system is still managed by India's sluggish, prejudiced, and male-dominated bureaucratic structure. This makes it difficult for women entrepreneurs to obtain bank funding since bank authorities have the last say on whether or not a company loan is approved.

On the other hand, angel investors and venture capitalists, who support startups and potential SMEs, are generally wary of working with female CEOs and company owners. Even if they agree to invest in a woman-owned small business, they frequently strive to gain control of the company by establishing proxy power centers.

The only way to transform the fundraising landscape for women is to have more women on the investment side of the table. Change must come from inside the investing community to improve gender diversity. According to studies all across the world, women investors are three times more likely than males to invest in female entrepreneurs.

It is therefore critical to have a larger female presence in the investing community. This is why LPs and institutional investors in India and elsewhere should start looking at indicators like how many female and minority founders their venture company has helped, as well as their relative results. Diversity objectives should be defined and reported on internally by analyst programs, incubators, and venture capital organizations.

One critical step is to guarantee that more women-led enterprises receive funding from government-sponsored funds. For this purpose, it is sound to propose that the government allocate more funds to organizations and platforms that assist and encourage women entrepreneurs, particularly in rural regions. This isn't just about reservations or allocations; we need to develop institutions that incentivize investments in women-owned businesses. Women-focused investments have the potential to be incentivized in the same way that sustainable or impact investing is incentivized around the world.

Higher carry, or a portion of any profits realized by investors, for funds contributed to women-led companies as part of government-led programs, is one strategy to incentivize such investments. Furthermore, government-led funds may strive to channel more funding to female investors as part of their programs.

And last but not least, many industries, such as manufacturing, IT/ITes, are still considered a man's domain. Women lack access to the industry relationships, processes, and know-how that are required to operate a successful business. Despite the ongoing dismantling of preconceptions, there is still a dearth of public awareness in these areas. STEM (science, technology, engineering, and mathematics) education can help women entrepreneurs bridge the gap that they now confront. This is one of the key reasons why, despite our best efforts, we are unable to close the gender gap.

One method to overcome this problem is the establishment of a digital university, which was announced in Budget 2022 and has a more balanced female representation. Encouraging more women to enroll in the new Digital University will aid in capacity development and broaden the skill pool available to firm owners, allowing more women to become entrepreneurs. Also, women entrepreneurs should connect to the capital ventures, which are led by females themselves. Lastly, be firm with your innovative ideas and keep working on them because there are certain types of bank loans that are granted to entrepreneurs having innovative ideas.

Authored by Rohit Arora, CEO & Co-Founder, Biz2Credit & Biz2X