Why Women-Led Startups are the Next Big Investment Opportunity

🔍Insights

Nadeesh Kareemdathil, Apoorva Bajj

Feb 29, 2024 — 4 min read

Why Women-Led Startups are the Next Big Investment Opportunity

The Indian startup ecosystem has witnessed remarkable growth and transformation in recent years. Among these exciting developments, the rise of women-led startups has been a particularly inspiring trend, challenging traditional gender roles and driving innovation across various sectors. However, despite the undeniable progress made by female entrepreneurs, women-led businesses still navigate the persistent challenges of securing adequate funding to scale their ventures.

Understanding the Gender Divide
Challenges Faced by Women Entrepreneurs
The Rise of Women-Centric Initiatives
Changing Investor Perceptions
Success Stories Abound
The Road Ahead

Understanding the Gender Divide

Several studies have exposed the funding disparity between male-led and female-led startups in India. According to a 2023 report by Inc42, startups with at least one female founder secured a paltry 5.3% of the total funding raised by Indian startups in the first half of the year. This figure represents a significant decline from the 12.82% share of funding captured by women-led ventures during the same period in 2022.

The reasons behind this funding divide are multifaceted, ranging from deep-seated societal biases to insufficient access to networks and mentorship opportunities. Anisha Singh, founder of the She Capital Fund, which offers support to female-led startups, highlights the hurdles: "Making a case for females, and female founders, would be so tough." Investors are often guided by unconscious biases about women's entrepreneurial skills, leading them to underestimate the potential of women-led businesses.

Challenges Faced by Women Entrepreneurs

Despite the growth in funding and support for women-led startups, several challenges persist. Some of the key challenges faced by these entrepreneurs include:

Access to funding: Women entrepreneurs often face difficulty in accessing funding due to traditional gender biases and lack of collateral.
Lack of mentorship and support networks: The startup ecosystem is still male-dominated, and women entrepreneurs may face a lack of mentors and role models who can guide them through the challenges of starting and growing a business.
Limited access to resources: Women entrepreneurs may have limited access to resources such as workspace, networking opportunities, and expert advice due to gender-based barriers and social norms.
Cultural and social barriers: In some cases, women entrepreneurs may face cultural and social barriers that discourage entrepreneurship or hinder their ability to raise funds from traditional sources.
Legal and regulatory challenges: Women entrepreneurs may encounter legal and regulatory challenges related to property rights, inheritance, and access to financial services.

The Rise of Women-Centric Initiatives

To counter the investment gap for women-led startups, the past few years have witnessed the emergence of various women-focused initiatives. Investment funds like She Capital and initiatives like the Women in India's Startup Ecosystem Report (WISER) are playing a crucial role in increasing visibility and providing tailored support to female entrepreneurs.

“With the increasing number of initiatives dedicated to empowering women in entrepreneurship, there is a growing recognition of the potential that women-led startups bring to the table,” observes Ankita Pegu of WSP, a platform that has assisted over 400 women-led startups.

Changing Investor Perceptions

A significant transformation accompanying this surge in women-centric initiatives is the shift in investor perceptions. Research indicates that businesses having a more diverse leadership structure, with balanced gender representation, tend to outperform their counterparts. Moreover, women-led startups are demonstrating remarkable resilience and innovation.

“The narrative is finally beginning to change. Investors are realizing that investing in women-led startups isn’t just about ‘doing good’ – it makes sound business sense," asserts a leading venture capitalist who has backed several successful women-led ventures.

Selected Countries by Share of Female Adult Population Engaged in Entrepreneurial Activity, 2022

Success Stories Abound

India is brimming with inspiring examples of women-led startups that have defied the odds and achieved significant success. Unicorns like Amagi, 5ire, Lead School, Open, and LivSpace have female leadership at the helm. These success stories are instrumental in shattering outdated stereotypes about women in business.

The eCommerce space continues to be a favorable domain for women-led startups. These ventures often address niche markets, solving pain points unique to women, and providing innovative solutions in sectors like fashion, beauty, and healthcare.

The Road Ahead

While the Indian startup ecosystem has made headway in addressing the investment hurdles faced by women-led startups, progress needs to be further accelerated. Here are key strategies needed to achieve this:

Addressing Unconscious Biases: Training programs tailored towards investors that help identify and mitigate unconscious biases during the investment decision-making process are crucial. Furthermore, investors must be made aware of studies demonstrating that women-led startups demonstrate strong returns, dispelling any unfounded doubts about their profitability.
Mentorship and Networking: Providing female entrepreneurs with enhanced access to experienced mentors and robust networks that are integral to the startup ecosystem can help them break into circles traditionally dominated by men.
Government Initiatives: The government can play a significant role by launching schemes specifically designed to support women-led startups during the early stages when they often face the most financial struggles.
Increasing Visibility: Highlighting the success stories of women-led startups is vital in inspiring more women to take the entrepreneurial leap and in shifting investor mindsets.

India has the opportunity to become a global leader in supporting and bolstering women-led startups. Investing in female entrepreneurs is not only vital for creating a more equitable society but is also a savvy business decision with demonstrably high returns. With persistent efforts toward changing investor perceptions, providing greater access to resources and support, and amplifying success stories, the upward trajectory of women-led startups in India is assured. Let's work together to achieve a future where female entrepreneurship flourishes and fuels economic growth.