Despite being the continent with the highest proportion of women entrepreneurs globally, African women receive less than 7% of all venture capital investment. Jessica Blake, associate at Spear Capital, suggests investor solutions that can help drive greater levels of investment in women-owned businesses.
Africa is rich with women entrepreneurs. In fact, the continent has the highest proportion of women entrepreneurs in the world, with more than a quarter of all businesses either started or run by women.
In Europe, by contrast, the rate of entrepreneurial activity among women is just 5.7%. Yet, despite those high levels of entrepreneurial activity, African women draw the short straw when it comes to funding.
No ad to show here.
While venture capital (VC) investment is only part of the picture, it’s instructive that women founders receive less than seven percent of all such funding on the continent (even though they make up around 20% of founders).
That’s clearly a problem, especially given that women entrepreneurs are less likely to give up their businesses than their male counterparts. It’s even more of a problem in Africa, where investing in entrepreneurs is crucial to fostering growth and development.
So, why do African women receive so much less investment? And what can be done to ensure that more African women receive the funding they need to fulfil their entrepreneurial potential?
A global problem
Before digging into the specifics of why African women entrepreneurs raise less funding than their male counterparts, it’s worth noting that it’s a problem around the globe. In the US, for instance, women represented 14% of solo start-up founders in 2021 but received just two percent of VC funding.
The picture is even worse in Europe, where women also account for 14% of start-up founders but received just under one percent of total VC funding.
Of course, there are other forms of investment and not every business is a start-up. But it’s instructive that a sector that’s supposed to be future-oriented and at the forefront of innovation struggles to invest in women at anything like the same rates that they’re starting businesses.
It also puts paid to the notion that African women would get more investment if they were starting more of the kind of scalable businesses that attract investment. In the face of low employment rates, most African women start businesses as a means of survival.
In South Africa, for instance, the official unemployment rate is 32.7%, with even StatsSA (the body responsible for putting together that country’s unemployment figures) noting that women are disproportionately affected. When you’re battling for survival, it can be incredibly difficult to find ways of growing your business to the point where you’re able to scale it and attract investment.
But even if there were weight to that argument, it wouldn’t explain why investments in female-founded businesses that are scalable receive so much less funding.
An investor problem with investor solutions
One explanation for why investment in African women entrepreneurs is so low is that there simply isn’t enough female representation among investors.
According to figures from IFC, just 12% of senior general partners (GPs) in Sub-Saharan African private equity/venture capital (PE/VC) firms are female. Globally, the number is even lower at 11%. That second number is relevant to Africa because an increasing number of global firms invest in the continent.
Growing the number of senior figures in VC and private equity firms will therefore be crucial to addressing gender bias among investors on the continent. But it’s also important that male investors simultaneously examine their own biases to ensure that they make more of an effort to invest in female-owned businesses.
But there are also other ways that investors can help drive greater levels of investment in female-owned businesses.
Nurturing Africa’s innate entrepreneurial talent
For instance, many African women entrepreneurs also have limited access to the kinds of business networks that can help them scale their businesses. By taking a more hands-on approach that extends beyond funding, investors can help ensure that the entrepreneurs they back are integrated into their broader networks.
Doing so doesn’t just mean that the business is more likely to grow and succeed, it also means that both the investor and the entrepreneur are more likely to achieve a solid exit down the line.
That, in turn, helps create a virtuous cycle where investors have more money to back women entrepreneurs and where women entrepreneurs eventually become investors themselves. If that process is repeated over and over, it doesn’t take long before you have an entrepreneurial and investment ecosystem that is bigger, fairer, and more equitable.
Ultimately, there is too much entrepreneurial talent in Africa to let it go to waste through lack of investment. And the best way to do so is for investors to ensure that half the population isn’t locked out of the opportunities that the other half enjoys.
READ NEXT: AWS announces funding boost for women founders in Africa