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Quotas for funding women-led startups could address male bias

Women's angel investor Lucy Chow is evolving the dialogue in gender equality
  • Few female entrepreneurs in Gulf secure venture capital 
  • UAE now mandates listed companies have at least one female director
  • Female VCs three times more likely to invest in firms with female CEO 

Experts have deemed the regional venture capital industry as “fundamentally biased against women” as new data shows female startups and entrepreneurs secured just 0.1 percent of the $105 million of the available Middle East funding pot last month.

In a bid to equalise gender opportunities, the UAE recently mandated that all listed companies must have at least one female director on their boards.

As a result, in July it was revealed that 8.9 percent of the seats on the boards of 115 listed UAE companies were held by women, up from 3.5 percent in 2020.

This positive inclusivity leap suggests that government action can lead to change, so AGBI asked those in the VC industry if the government should introduce a quota on how much funding should be allocated to female startups.

Dubai-based Lucy Chow, general partner at the World Business Angels Investment Forum (WBAF) Angel Investment Fund, which gives half of its funding to female or diverse founders, pointed to research by Boston Consulting Group (BCG) that found that every dollar of funding given to startups co-founded by women returned an average of 78 cents, while male-founded startups generated 31 cents. 

“If we want to see any measurable increase in funding going to female founders, quotas are required,” she said.

“I wish to reiterate again that this should not be seen as ‘affirmative action’. This is a smart return on investment strategy.”

Person, Human, Sitting
Jane Valls, executive director of the GCC Board Directors Institute

Return on investment

The BCG research found that not only do women give a better return on investment, they also did it with less funding. Investments in companies involving female founders averaged $935,000, less than half the $2.1 million given on average to male-led startups.

Despite this research, a gender bias does exist in the UAE. The Visa Entrepreneur Study, commissioned by the global payments giant, found that a third of male business owners surveyed in the UAE believed women couldn’t compete with companies run by men. 

“I have not seen any data that leads me to believe that businesses that are founded and run by men systematically do better than businesses founded by women,” said Saeeda Jaffar, senior vice president and group country manager for Visa GCC.

Jane Valls, executive director of the GCC Board Directors Institute, who has worked in the corporate governance area for over 20 years, said research has shown that companies with strong female leadership generated a return on equity of 10.1 percent per year, versus 7.4 percent for those without. 

“Is allocating a certain percentage of the available funding for women-led starts up the solution? Yes, perhaps we could start by saying 20 percent of funding should go to female led startups,” she said. 

Research by the Center for Women’s Entrepreneurial Leadership in Massachusetts also showed that having more female decision-makers has a direct impact.

It found that venture capital firms with a female partner are more than twice as likely as firms without a female partner to invest in a company with a woman among the management team and are three times more likely to invest in a female CEO.

In the US, the San Francisco-based All Raise initiative is aiming to try and increase the number of female decision-makers at VC firms with assets under management of more than $25 million from nine percent to 18 percent by 2028. This is something Valls believed is also needed in the Gulf.

“Let’s ensure that VC funds have more women on their boards and in their teams and that startup investors broaden their portfolios to include female-founded start-ups,” she said.

Chow said the pipeline was key to addressing the problem. At present, only 20 percent of global startups have at least one female founder.

“Half of pitches should be from female founded startups. This doesn’t have to be exactly 50 percent day one, but the onus will be on investment teams to actively seek out and network with female founders,” she said.

“If the pipeline of ideas from female founders is thin, funding will also continue to proceed at a glacial pace. Start with the pipeline.”

Face, Person, Human
Jen Blandos, founder of Female Fusion

Falling on deaf ears

Jen Blandos, founder of Female Fusion, a UAE-based community of female entrepreneurs, said she is not generally in favour of quotas, except when national equality disparity is gaping.

“Something needs to shift to help investors do the right thing. One of the things that I see is that women create businesses to solve a problem or help a cause they believe in. 

“For example, they create businesses like period tracking apps or eco-friendly period underwear… when they pitch to investors that are male, the men look at it and scratch their heads saying why? Who would buy that? Rather than seeing that 50 percent of the population would – just not their 50 percent of the population.” 

One company looking to change the funding imbalance is Mindshift Capital, which was set up in 2019 and invests in women-led, early-stage tech companies in the Middle East and globally at the post-seed round.

However, Dubai-based founding partner Heather Henyon does not believe that gender quotas for venture capital funds would be positive for female founders or investors.

“While it may help to increase the funding allocation to women-led startups in the short-term, early-stage funding is an alignment of values between investors and the companies in which they invest.

“Alignment can’t be regulated; it needs to be organic. The value of investment at the early stage is beyond capital – it comes from time, networks, introductions and belief in the founders and what they are building.”

In the US, 11 percent of early-stage funding goes to female founders, and All Raise has set a goal to increase this to 23 percent by the end of the decade.

Clothing, Apparel, Person
Bianca Gracias, co-founder of Crimson Legal

Incentives over quotas

Bianca Gracias, managing partner at Abu Dhabi-based legal firm Crimson Legal, which specialises in advising investors, startups and entrepreneurs, agreed that this is an area the government is unlikely to take a role in.

“It is not typical government policy anywhere in the world to intervene and impose regulation on how perhaps a venture capital fund should invest its funds, therefore I don’t believe a regulation enforcing quota for private funding organisations will ever come to fruition. 

Rather than a set quota, Gracias said she believed the government could help bring about change by incentivising private funding organisations to support female founders. The UAE government already rewards companies with high Emiratisation staffing quotas.

Ryaan Sharif, UAE general manager at Flat6Labs, a Cairo-headquartered venture capital firm which manages seed funds on behalf of around 25 institutions across the Middle East and North Africa, said a mandated quota would be controversial.

“The context that the quota system operates in determines its effectiveness. One potential pitfall of quotas is that they could result in female-founded startups being perceived as less qualified which is not the case. 

“It could provoke a backlash from the investors due to this being a merely gender-oriented approach. The pipeline of female entrepreneurs and VC’s selection criteria are at the core of the problem.” 

Sharif did concede that the networks that VCs use to generate deals is worth re-evaluating and diversity incubator programmes and voluntary quotas might be one way to try and improve things in the short-term.

“There are so many changes that need to be made and I truly hope that when my daughter is my age that this won’t even be a conversation anymore,” Blandos said.