Levelling the playing field – how can investors support women to access business growth funding?

Education, awareness and training all have roles to play in helping female founders to access investment, finds Peter Ranscombe.

Sometimes statistics stop you in your tracks. While 20% of Scotland’s entrepreneurs are women, just 2% of institutional investment is awarded to women-led companies north of the border.

Those sobering figures sat at the heart of the Pathways report written by Ana Stewart and Mark Logan and published by the Scottish Government in 2023. The report marked a watershed moment in the decades-old conversation about inequalities within Scotland’s entrepreneurial ecosystem.

Three years later, has enough progress been made to tackle the challenges highlighted in the Pathways report? “Sadly not,” says Carolyn Currie, chief executive at membership body Women's Enterprise Scotland (WES). “In the United States, which operates a Women’s Business Centre model, women-led businesses are 39% of all businesses and their revenue is growing.

“Achieving a comparable 39% in Scotland would deliver an estimated £17 billion annual economic contribution. At WES, we continue to advocate for a Women’s Business Centre model in Scotland, ensuring a fair and proportionate share of business funding and growth resources is directed to women.”

WES has called for the creation of a national women’s business centre with regional hubs, which would provide support for women to launch and grow companies. WES launched a digital Women’s Business Centre in 2020, while Queen Margaret University in Musselburgh wants to host the national centre alongside its proposed innovation park.

“It can be easy to be overwhelmed by the scale of the problem, but we are seeing tangible action,” points out Margaret Morton, chief executive at Angel Capital Scotland (ACS), the national business angels association. “There are now 290 signatories to the UK Government’s Investing in Women Code, including financial institutions and angel groups, while many have also made the Pathways Pledge, which followed from Ana Stewart’s Pathways report, and which commits them to measurable actions to support female entrepreneurship. This complements the work angel groups are already doing to drive diversity and inclusion.”

Getting to the roots of the problems

Paul Scullion, head of corporate at law firm Burness Paull, underlines some of the challenges identified in the Pathways report, including “unclear pathways to entrepreneurship, logistical constraints more often faced by women, and a vicious cycle where women don’t feel represented in the entrepreneurial community, which discourages participation”.

“These themes were also picked up in the recent Scaling Scotland report, to which Burness Paull contributed through our chair, Peter Lawson, sitting on the panel, and myself and others participating in a number of the interviews,” he adds. “The report highlights cultural as well as structural challenges facing female founders and the need for leaders in the entrepreneurial ecosystem to take notice and action – without this there won’t be change.”

Margaret – who was a partner at law firm Tods Murray before taking on senior roles at Barnardo’s, Inspiring Scotland, the Royal Society of Edinburgh and the University of Glasgow – explains: “Typically, though not always, women have a different risk appetite, which can adversely affect how their businesses are perceived by funders. They can have a heightened awareness of risk, which might be reflected in the amount of funding they seek or their growth projections.”

Carolyn says: “The majority of investors are male and have a natural interest in and affinity with businesses founded by men and with the sectors they operate in. In turn, they tend to have less natural affinity with how and where in the economy women typically run businesses.”

Paul adds: “There are challenges and barriers to female progression across many sectors, the legal industry being no different. Burness Paull is the first law firm to sign up to the Pathways Pledge, setting out our commitment to championing change for future leaders in our own organisation.”

Tackling conscious and unconscious investor bias

Part of the solution is to have greater diversity of thought on the boards of investment providers, which comes through having balanced boards and shareholder diversity, Margaret says. In turn, that diversity comes through awareness, education and having more women business angels.

“There’s also a need to address investor bias, whether it’s conscious or unconscious,” adds Margaret. “Often, female founders are asked what would be described as ‘prevention’ questions – for example, focusing on risk – whereas male founders are more likely to receive ‘promotion’ questions around growth opportunities.”

Margaret highlights the success of Sweden's Almi Invest model with standardised pitch evaluation criteria. She also highlights the importance of having gender-balanced evaluation teams, providing unconscious bias training and introducing transparent reporting requirements.

Carolyn points out: “Tackling the composition of investment committees and other decision-making forums to achieve an equal split of men and women will help make progress. It is also important to encourage more women to train as investors and to explore investing opportunities.”

Paul adds: “There is some fantastic work going on to raise the participation level of women in the entrepreneurial economy; for example, [the] Investing Women Angels [syndicate] and AccelerateHER’s government-backed W2W programme, which we’re pleased to support – a first for Scotland in bringing together early-stage companies and those interested in investing. We’re also founding partners of tech accelerator STAC, which has seen female participation in its cohort steadily increase and female-led businesses go on to secure investment through the STAC investment fund.”

ACS itself is also modelling change. Following Margaret becoming its chief executive in September last year, Niki McKenzie – joint managing director at business angel syndicate Archangel – took on the role of chair in January. They are joined on the board by Lynne Cadenhead, Fraser Lusty and Niall MacKenzie.

ACS was formed last year as the successor body to LINC Scotland, which worked with Scottish Enterprise in 2004 to create the world’s first co-investment model to bring together business angels and taxpayer funding. “The appointment of a female chief executive and chair has been well received – there’s been a lot of goodwill and that’s really heartening,” adds Margaret. “When I chaired ACS’s quarterly angel leaders’ forum [recently], we had a fifty-fifty gender split across our 20 members around the table, which should be celebrated.”

Considering wider sources of funding

When Sonja Mitchell launched Jump Ship Brewing, her non-alcoholic beer brand, in 2019 she turned to crowdfunding to raise an initial £5,000, giving investors rewards in return for their money. Royal Bank of Scotland’s Back Her Business programme matched the amount she raised through the crowdfunding – but what became just as important was that initial group of investors, who supported her business through the pandemic when pubs were shut.

“I hadn’t expected to have a direct-to-consumer business, but that was the only channel open to me,” explains Sonja. “That became the kernel of the business.”

Her company flourished and so, when the time came to raise money to build her own brewery – so she no longer had to make her beers in other people’s premises – she emailed her initial crowdfunders to gauge their interest. Their enthusiasm spurred her on to raise £366,000 in early 2023, this time switching from reward-based crowdfunding to selling shares.

“I looked at other options before I went with crowdfunding but, when I spoke to traditional angel investors, they saw investing in a brewery as too high-risk, especially as energy prices had spiked following Russia’s invasion of Ukraine,” Sonja says. “They asked why I didn’t invest in sales and marketing and continue to outsource production, rather than building my own brewery, but the crowdfunders who had been with me from the start understood I needed my own brewery in order to control quality.”

Opening her brewery in Midlothian has allowed Sonja to develop beers in kegs for the on-trade, complementing her existing range of cans. In December last year she raised a further £323,000 through another crowdfunding campaign to fuel expansion.

Sonja points to support she received along the way, including from the Pathways to Scale Programme, which helped her cohort of women founders get ready to raise investment. “It is a generalisation, but I think women may tend to be more cautious when it comes to seeking investment,” she adds. “It made a big difference having that support to practice my pitch and then be introduced to investors and learn about the types of businesses they had invested in.”