Gender Pay Gap with Woman Being Paid

Women in Fintech Part 2: Is the VC ecosystem fundamentally disadvantageous to women founders?

In the first part of the Women in Fintech series, we spoke about how women are hired in financial technology companies but aren’t commonly promoted to leadership roles. In addition to the promotion gap, this piece will focus on whether and how women are funded within the venture capital ecosystem.

Is the venture side of fintech male-dominated? If so, why? Are there inevitable factors responsible for the disparity in funding of businesses between genders? Are there inter-personal barriers, or organizational, both or more? Let’s find out.

According to a study by Automatic Data Processing Inc. (ADP), the finance industry in the U.S. has the second-largest pay gap. Based on ADP’s research, the average salary for women in the banking and finance sector was $27 per hour in 2019, compared to an average hourly wage of $40 for men. The gender pay gap this year is $0.80 for every $1 that men make, the same as 2021.

Research indicates that women, in general, are less risk-taking than men. Could this be the reason for the lower numbers of female-owned ventures? Studies further cited that women are generally less likely to ask and negotiate than their male counterparts in many contexts, but not all. They are also known to be “more pessimistic about fundraising.”

Venture capitalists and funding

It is found that venture capital firms prefer to fund pitches narrated by a male voice, regarding them as more persuasive, logical, and fact-based compared to very similar pitches made by a female voice. The venture capitalists also use gender-biased language to describe and assess entrepreneurs, with males usually portrayed in a positive and leadership-oriented language. Another study found that venture capitalists asked men and women different questions. Men were often asked questions about their potential for profits, while questions for women were predominantly focused on the potential for losses.

A different study discovered that additional questions are asked to female and male founders as part of the same pitching process, emphasizing that venture capitalists ask men the questions that tend to indicate an advantage to them. Generally, female founders receive approximately a quarter of the amount of funding they seek, while their male counterparts receive half, on average. Women are also underrepresented in venture deals, with only 5.9% of U.S. deals involving all-female founding teams or solo female founders and 15.2% involving mixed-gender founding teams.

Moreso, venture capital fundraising is still considered a very masculine domain, strongly and discretely disfavoring, or not supporting women. The venture ecosystem unknowingly or knowingly uses the old patterns of replicating the historical examples of success. And hence, female founders are seen as a risk or a threat, while their male partners are considered safe and profitable bets. The VCs then fund more and more male-owned startups, and the cycle continues.

Even though female-owned venture capital firms are a beneficial addition to the system, they are usually small in size and few in numbers, making their impact on the overall gender gap almost minuscule.

In the U.S., approximately 11% of women are investing partners at venture capital firms. However, only 13% of venture capital money goes to startups with a woman on the founding team. A study performed by Deloitte found the average investment in fintech firms from 2015-2019 was US$8 million for women-founded startups, compared to US$15 million for cofounded startups and US$15.6 million for men-founded startups.

The numbers seem to have stagnated in the last three decades, as the 30-year average of all-female founders’ share of venture capital funding was 2.4% in 2019. Closely identical to the 2.3% share in 2018, it dropped to 2.1% in 2021, followed by a further drop, making it 2.0% in 2022.

Light at the end of the tunnel?

What can be and what is being done to dismantle these barriers to support gender diversity and equality in venture capital? Some numbers do show a slight shift in the investing landscape. Still, the disparity in funding, along with the underrepresentation of women in the founder category, remains a nagging stumbling block for women in fintech.

The venture capital sector should design and implement a standardized pitching and evaluation process for all founders irrespective of their demographic and gender profile. While making vital decisions, venture capitalists should ponder over essential and transformational pointers, such as whether or not they are making the right investment. They should pause and consider if any bias is influencing their decision to invest in one company over another.

Numerous studies have proven that diversity leads to efficiency across all industries and across the world. Venture capitalists, therefore, should consciously include the factor of diversity within their ecosystem, because it will eventually multiply the effects, aka benefits. Former research done by Deloitte found that with each woman added to C-suite, a threefold increase occurred in the number of women taking over leadership roles.

Things are starting to change, and as a perpetual optimist, I feel they shall keep changing for the better until this industry reaches a state of gender equanimity.

Reference credits: Harvard Education, and Deloitte Insights

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