Female startups more vulnerable to uncertainty?

2022 was a brutal year for the startup space in the country, especially after the phenomenal funding boom in 2020 and then 2021. Political uncertainty coupled with economic chaos characterized by weak economic activity including the IT sector, double digit inflation, nose-diving foreign reserves, record depreciation in the currency, significant risk of default, – were more than enough to keep the ecosystem jittery. And now 2023 is rockier for as both economic and political indicators fall further into the abyss.

In this challenging environment, gender funding gap in the startup ecosystem was bound to topple as well. Why and by how much? In its recent insights, Invest 2 Innovate (i2i) has explored and analyzed the startup investment landscape though the gender lens. The insights are worth reflection for all the stakeholders and necessary when working towards an inclusive startup ecosystem.

Gender inequality is pervasive in global startup investment landscape. Interestingly, the insights by i2i show that there was a noteworthy impact on narrowing the gender funding gap during 2021 funding spur in Pakistan. However, the data also shows that the female founded and co-founded startups were more vulnerable and riskier to the funding slowdown witnessed post 2021 as the share of total startup funding that the female founded and co-founded startups when down from 34 percent in 2021 to only 8 percent of the total startup funding in 2022. The trend is in tandem with the startup funding in the MENAP region where female founded and co-founded businesses raised 6 percent to the total.

Another insight shared by i2i in analyzing the startup funding is that while female led startups closed a static 3 publically disclosed deals per year from 2020 to 2021, the number of deals closed by female co-founded startups escalated from 7 to 18. i2i highlights the issue of investors preferring a male founder for a startups raising finance, and women business being affected disproportionately during uncertain times.

There are a number of causes for the gender gap in startup investment. Not only there is a lack of diversity among investors and venture capitalists that results in an unconscious bias and a preference for male founded startups, women entrepreneurs face more obstacles in accessing funding. Along with gender discrimination lack of access to network and fewer opportunities to secure finance, the type of sectors and industries women-led startups focus on are often undervalued. To address these lacunas, there is a need for concerted efforts to increase women representation on venture capital firms. There is a need for more women focused programs and schemes be it in mentorship, networking or funding. And then, there is a need for creating awareness among women about the traditional women-oriented sectors and investors for opportunities to invest in diverse teams and industries to make the startup investment landscape inclusive.