Funding Woes: Women-led Startups received Only 10% VC Funding in 2023

By: WE Staff

Venture capital or VC funding has seen a decline in women-led startups in India. This highlights the systemic challenges that women entrepreneurs face in securing financial backing. WinPe’s new report sheds light on how tough it has been for women founders to raise funding. Understanding the factors contributing to this decline is crucial for a more inclusive entrepreneurial ecosystem.

Venture capital (VC) funding is private equity financing offered by venture capital firms or individual investors to startups and early-stage companies with high growth potential. It involves investing in high-risk, high-reward companies with innovative ideas or technologies, often in their early stages of development.

VCs receive an equity stake in the company, and take an active role in the companies, offering guidance, strategic advice, and connections. VC funding is a critical component for a startup’s growth and eventual success.

Unfortunately, VC funding, a critical catalyst for startup success is often skewed in favor of male-founded ventures. A recent report by WinPe, a non-profit organization focused on gender diversity in private equity has brought forth startling statistics. According to the research, VC financing for women-led businesses in India fell from 14.7 per cent in 2021 to 9.3 per cent in 2023.

A new report showcases a significant gender disparity in venture capital (VC) funding for women-led startups in India. It states that in 2023, female founders received less than 10 per cent of funding, underscoring the need for more representation of women in investment evaluation processes.

The gender gap in finance is highlighted by data from the International Finance Corporation (IFC) showing that just 11 per cent of seed capital and much less of late-stage funding go to firms having women on their founding teams.

Nupur Garg, Founder, of WinPe states, "All investors say they will back the best idea, but that is influenced by stereotypes and unconscious biases." In 2023, women-led startups experienced a drop to single digits due to a sharp drop in venture capital investors following a record $38.5 billion inflow to Indian startups in 2021. Women own only 18-20 per cent of startups in India while 18-20 per cent of unicorns have women as cofounders, the report mentioned.

In 2022, a survey by Bharatiya Yuva Shakti Trust revealed that over 85 per cent of women entrepreneurs face challenges in obtaining credit from public sector banks. In contrast, the International Finance Corporation shows women-led start-ups receive only 11 per cent of seed funding in emerging markets. 3one4 Capital's partner, Nruthya Madappa, argues for more women representation in investment evaluation processes and a correction in the industry's biases. She highlights rare examples of women-only-founded companies like millet-based ready-to-cook mixes, cereals maker Slurrp Farm owner Meghana Narayan and Shauravi Malik, and protein bars maker Yogabar, founded by Suhasini Sampath, Anindita Sampath, and Ahana Gautam received VC funding.

Cause of Decline in VC Funding for Women-led Startups

The decline in venture capital funding for women-led start-ups in India in 2023 is attributed to gender bias, network disparities, sector concentration, risk perception, lack of representation, challenges in scaling, and implicit bias. Despite efforts to promote diversity, investors may unconsciously favor male founders, leading to a funding gap. Network disparities and a lack of representation in decision-making roles further contribute to this issue. To address this, it's crucial to promote gender diversity, educate investors, expand networks, and celebrate success stories to inspire others and challenge stereotypes.

The Indian economy is implementing initiatives to address the gender funding gap for women-led startups. Initiatives such as the Women StartUp Programme (WSP) hosted by NSRCEL provide training in essential business skills to women entrepreneurs, enabling them to pitch for financing. Financial education and support networks aim to improve access to capital and empower female entrepreneurs.  Research coalitions, advocacy campaigns, and government initiatives are also being implemented to bridge the funding gap. Educating potential investors about the value of women-led ventures can lead to more equitable investment decisions.