Accelerator-cum-investment firms such as Village Capital are using digital tools and 'peer selection' models to mitigate gender bias and perceptions of high risks about women entrepreneurs
Notwithstanding the sudden surge of interest by international investors to fund start-ups from the Middle East and North Africa (MENA) region, female entrepreneurs face greatly unequal access to the capital necessary to grow and scale their start-ups, a sector expert said.
A solution to this gender bias may be in the cards with accelerator-cum-investment firms such as Village Capital turning to innovative approaches such using digital tools and ‘peer selection’ models to help investors arrive at funding decisions.
“Our research developed by International Finance Corporation (IFC) and the World Bank Group Gender Innovation Lab, in partnership with Village Capital and We-Fi shows that despite women leading nearly half the start-ups that participate in accelerators, this gender financing gap continues to grow,” Alicia Sornson, program and partnerships manager for MENA at Village Capital, told Arabian Business.
“We discovered that the gender makeup of the founding team is strongly influencing the disparity in capital raised, suggesting a potential bias in investor decision making or a higher perceived risk for female-led start-ups,” added the senior executive of the Washington DC-headquartered acceleration and investment organisation.
Research shows that more than 85 percent of global venture capital goes to start-up ventures founded or led by men.
Sornson said accelerators have a major role to play in helping mitigate investors’ bias and risk perception and come up with effective interventions to address the gender imbalance in start-up funding.
“This [intervention] will need to be more holistic, reaching beyond addressing the behaviours of founders and focusing on influencing the behaviour of investors.
“We have been testing other approaches to reduce the gender financing gap including peer selection and using the digital tool Abaca,” she said.
Abaca helps investors to discover prospects of start-ups without initially revealing the gender of the founding team, while peer selection by entrepreneurs helps to forecast which ventures are most promising rather than investors deciding on funding based on ‘pitch competition’.
Sornson said Village Capital has been in the forefront of fighting the gender bias in start-up funding and as a result as much as 44 percent of companies in the VilCap – the investment arm of Village Capital – portfolio is female led.
“We at Village Capital are cognisant of the issues [about gender bias and the perception about higher risks] and think it is imperative to change the status quo,” Sornson said.
VilCap has investments in about 110 start-ups.
As for its plans to organise more acceleration programmes in MENA, Sornson said Village Capital would continue to work with early-stage entrepreneurs across the region through its investment readiness programs.
“The primary areas in which we work are financial health, future of work and sustainability,” she said.
Village Capital has been running its investment readiness-focused programs with partners in MENA since 2018. This year, it has announced two cohorts in collaboration with IFC for a total of 21 start-ups from the region.