Women-founded firms get a trickle of venture funding
Wednesday May 17 2023
Only seven percent of the venture capital deals struck in 2022 went to women-owned companies, indicating the disparity in backing in the sector.
Venture Capital in Africa Report by African Private Equity and Venture Capital Association (AVCA) also shows the proportion was lower than 13 percent of deals that went to female-led companies or companies with a female CEO, suggesting that more women are leading than founding early-stage companies in Africa.
It ties to the underrepresentation of women in senior leadership roles leading to the slow trickle of venture capital to solely female-founded start-ups.
“Although the industry made modest strides towards diversifying gender representation in the recipients of venture capital, the funding gap between male and female founders in Africa remains significant,” the report states.
It shows that female presence at the founders’ table rises by 19 percentage points when evaluating the proportion of deals volume allocated to diverse founding teams.
About 26 percent of start-ups that received venture financing in 2022 were either entirely women-owned or counted at least one female in the founding cohort, raising nearly $950 million.
This has increased from 24 percent of start-ups that received venture financing in 2021 under this category, raising a cumulative $150 million, indicating that the industry was not as favourable to female founders.
Funding women-founded businesses has been among the top challenges over the years.
It has seen financial institutions such as banks launch women-focused products.
For instance, Visa gives grants to three women fund managers – SMEs.NG (Nigeria), Altree Capital (Kenya), and Maia Capital (South Africa) – through the African Women Impact Fund Initiative (AWIF), which then invests in women-owned entrepreneurs across economic sectors.
Read: DTB rolls out Zawadi account eyeing women-owned SMEs
“We are proud to extend our efforts to empower women entrepreneurs to the fund management space. Women fund managers in Africa face numerous challenges in building sustainable businesses. Their progress continues to be slow due to systematic barriers and investor bias,” said Aida Diarra, senior vice president and head of sub-Saharan Africa at Visa.
Banks such as KCB, Absa, and Equity have products committing billions of shillings towards women.
For instance, KCB set aside Sh250 billion for the next five years to fund women-led and owned small and medium enterprises (SMEs) across the country in October last year.
Most of the products and funds in the banking industry are dedicated to SMEs. Standard Chartered has however taken a change of tact with its SC Ventures.
The AVCA report shows private equity or venture capital fund managers – those raising third-party funds from institutional investors – was once again the most active investors by type in Africa in 2022, followed by investment firms – making mainly direct investments- then corporate venture firm and financial institutions.
“Female representation on the allocator/investor side of the transaction is just as anemic as among the ranks of entrepreneurs. As of the close of 2021, 33 percent of all roles in private capital globally were filled by women, but this figure dropped significantly to just 20 percent at managing director or partner level.”
“The underrepresentation of women in senior leadership roles could be one reason for the slow trickle of venture capital to solely female-founded start-ups, which only received 2 percent of venture inflows into Africa in 2022.”
Global average funding
This is slightly below the global average of 2.7 percent of venture capital dollars that went towards female-founded companies in 2019.
“However, a new generation of female fund managers has emerged on the continent in the last five years, putting their money where their mouth is and leading the charge towards gender parity in capital distribution,” AVCA stated.
Some Kenyan-based female-founded start-ups that raised VC funding in 2022 include Pezesha, Kukua, Lami, and Powered by People.
AVCA report also shows that the number of start-ups that count at least one woman in their founding cohort is rising.
“This suggests that, at least on real terms, more capital allocators are adopting a gendered lens to their investments. While this is a measure of the industry’s development regarding diversity and inclusion, an immense amount of ground must be gained before reaching equal female representation amongst funded ventures,” it added.
In 2022, Kenyan start-ups received $676 million (Sh92.68 billion at the current exchange rates) in venture capital last year amid a global shrink in venture funding and tech companies’ closures.
This represented 13 percent of the total $5.2 billion raised in venture capital in the continent over the year.
This was about 102 deals out of the 786 deals in Africa.
Read: Taking female-owned firms to next level
Kenya ranked third in value of the funding after US-headquartered and Nigerian start-ups received $884 million and $780 million, respectively, and ahead of Egypt ($676 million), South Africa ($520 million), Ghana ($208 million) and Algeria ($156 million).
Regarding the number of deals, Kenya was ranked fourth, with Nigeria leading (172), Egypt at 117 VC deals, and South Africa (110).