How to bridge the gender gap in start-ups and venture capital

Ghazal Alagh, 34, who runs beauty and personal care brand Mamaearth, recalls the time when she was out to raise her first round of venture funding. Investors were reluctant to put money in her company just because it was run by a woman. Later, when her husband Varun Alagh joined as Co-founder, the questions continued: What if you guys split up? Who will run the company? “Founders can split up otherwise, too,” she says.

But these questions are seldom asked of male founders.

Another D2C (direct-to-consumer) beauty brand’s Founder, Vineeta Singh of SUGAR Cosmetics, shared recently on a podcast that she had to hide her baby bump at an investor meeting because she feared the funding would not go through otherwise. Both Alagh and Singh are prominent founders in India’s start-up ecosystem—the world’s third-largest—today, and have vowed to empower other women, so they do not have to face the same situations.

Alagh, who’s an active angel investor, says, “Around 90 per cent of my portfolio companies are led by women founders. Back then [in 2016], it wasn’t a common thing. But the mindset is changing.” Singh, too, has made it a point to fund more women-led start-ups on TV reality show Shark Tank India, where she is one of the sharks.

The share of women founders in India has grown 2.68x between 2016 and 2021, per a LinkedIn survey. Add to that, the number of women founders of unicorns—start-ups with a valuation of $1 billion or more—has also jumped from low single digits in 2016-17 to 19 (or 28 per cent of all unicorn founders in India) last year, according to a report by Orios Venture Partners.

This essentially means that despite being traditionally under-funded (less than 8.5 per cent of venture capital or VC money between 2014 and 2022), India’s women-led start-ups have now begun to attract investor interest. While valuations and cheque sizes received by women entrepreneurs are yet to achieve parity with their male counterparts, things may be looking up, albeit slowly.

A bunch of initiatives—from grants and fellowships to women founder-focussed funds and tech accelerators—is now looking to address the glaring gender gap in the VC space. They’re also committing to build more gender-diverse investment teams and having more women at the table who can make bias-free decisions. Last December, during Google CEO Sundar Pichai’s visit to India, the tech giant announced that it would spend $75 million to back women-led start-ups here. Prior to that, it had also launched an accelerator programme for women founders.

Anjali Bansal, Founding Partner of climate-focussed VC fund Avaana Capital, says that the number of women in venture capital is on the rise, with more females participating across various levels, designations and functions. “Not only in leadership positions, but the number of women launching their own funds has also increased. The numbers are still not comparable to men, but certainly higher than they have been historically, which suggests a correcting trend line as opportunities become more accessible,” she says.

Almost 40 per cent of Avaana Capital’s investee companies have one or more women founders. “VCs must inculcate the principles of diversity and inclusion in their investment process. More funds are now becoming conscious in their hiring practices, and there is a higher degree of awareness on portfolio diversity as well,” Bansal explains.

At Sequoia Capital—another VC major—there are six women leaders and many more women across its investment teams now. “That’s a change we mindfully want to make, and grow women leaders who will become natural leaders in the time to come,” says Sakshi Chopra, Managing Director of Sequoia India. “Sequoia was also one of the first funds to have a woman MD or founders,” she says.

A Bain & Company report estimates that India’s women entrepreneurs are likely to create 150-170 million jobs by 2030. So far, they have created 27 million direct jobs. “When provided with equal access to inputs, women-owned enterprises produce equally strong economic outcomes when compared with enterprises led by men,” it states.

In the past 12-15 months, several VCs have launched initiatives to help women entrepreneurs with “equal” access to capital, opportunity, mentorship, go-to-market guidance, networks, community and more.

Upending the norms

In 2021, Sequoia Capital launched its Spark fellowship for women entrepreneurs that offers them a $100,000 equity-free grant and mentorship. As many as 10 of the 15 start-ups in the first cohort have gone on to raise seed and Series A rounds totalling $51 million, while one was acquired by Wipro. Sequoia unveiled its second Spark cohort in January 2023.

Chopra, who also leads Spark, shares, “We spoke to more than 200 women founders and they said it was hard for them to raise their first round of seed capital, to hire in product and tech, and it was even harder to meet angel investors or find a co-founder. It was something we definitely wanted to address.” Besides the grants, Sequoia added “a heavy element of mentorship and community” to its programme. A lot more experienced professionals are now stepping out of their jobs to build companies. And this includes women, too. “More women founders are coming to the top of the funnel, and the conversion from seed to Series A should also go up,” Chopra says.

Besides Spark, there’s Kalaari Capital’s CXXO initiative that was launched in 2021. The home-grown VC fund has earmarked $10 million to back women founders and create a level-playing field for them by providing easier access to capital, mentorship, networks and industry connects. “We want to enable more women to participate in India’s digital future. It’s necessary for our start-up ecosystem to have more women so there’s inclusive growth. Supporting companies that have women in key decision-making roles is also important to bring about a cultural shift in the ecosystem at large,” said MD Vani Kola during the CXXO launch.

Women-focussed VC funds like She Capital (backed by Small Industries Development Bank of India or Sidbi) have been working towards bridging the gender gap since 2018. Founded by Mydala’s ex-CEO Anisha Singh, She Capital invests in consumer tech start-ups led by women. One of its biggest bets was D2C women’s innerwear brand Clovia, which was acquired by Reliance Retail for $125 million last year. “To have more funding for female founders, you need more women sitting on this side [VC] of the table,” says Anisha Singh.

She says that back in 2018-19, when She Capital was formed, nobody else was backing women founders. “To VCs, women were a charity cause. But now, everyone from Sequoia to Kalaari is doing it. Statistics say that the female founder ecosystem in India is growing at 2.6x. In the next two to three years, you’ll see more women partners in the VC space.”

But for that to happen, you also need more and more women who are visible in the ecosystem. In China, for instance, almost 22 per cent of VCs are women. That number would be less than 10 per cent in India, says Padmaja Ruparel, Co-founder at Indian Angel Network and Founding Partner of IAN Fund. “There are close to 10,000 angel investors in India. Only 1 per cent would be women, and out of that, only 30-35 would be actively investing,” she says.

But things have certainly improved, and Ruparel, one of the earliest angels in India’s start-up ecosystem, has seen the evolution up close and personal. “When we started IAN, there was just a handful of women in venture capital. There was Renuka Ramnath [at ICICI Venture] and Vani Kola [at Kalaari]. From there to today, it is a slightly different world. But women still have a long way to go,” she says.

To effectively allocate capital in women-owned companies, US-based AWE (Achieving Women Equity) Funds launched its maiden fund in India last year. With a corpus of Rs 350 crore, it looks to invest in 15 women-led start-ups over the next five years and help 30 million women gain ‘agency’ by 2030. “The need for women to join mainstream economic value creation has gained serious urgency, especially in the setting of an overall scarcity of resources to achieve sustainable development goals,” says Seema Chaturvedi, Founding Partner of AWE Funds.

But to build a steady stream of investments in women-led firms, it is imperative that more young women are brought into the ambit of PE and VC investing, says IAN’s Ruparel. “We’ve not yet built a cadre of women who are looking at venture investing as a long-term career. What we are seeing is existing women in the finance space who have graduated to become VCs. It is still a first-generation industry for women,” she says.

IAN Fund is endeavouring to change the status quo, with 50 per cent of its investment team now comprising women. “It is very important for them to be in control of signing cheques,” Ruparel adds.

Experts reckon that seeing women in positions of power will organically inspire more women to take up founder and VC roles. To foster entrepreneurship among women and scale women-owned businesses, government think tank NITI Aayog partnered with Sidbi in 2018 to set up The Women Entrepreneurship Platform (WEP). It not only urges more women to launch their own start-ups, but also offers them hands-on support in setting up and scaling those businesses. Until March 2022, 900 women entrepreneurs had benefitted through the WEP platform, per NITI Aayog’s statement.

As per the Sixth Economic Census, women only constitute 13.76 per cent of total entrepreneurs, that is 8.05 million of the 58.5 million entrepreneurs in the country. “This may have been a missed opportunity in the past, but I am confident as the Government of India and the private sector hold hands through initiatives such as the WEP, we will realise this vision of a new India—where men and women have the equal opportunity to build,” Amitabh Kant, then CEO of NITI Aayog, had said during the WEP launch.

The Big Cheques

Despite things looking up, it might still be a long time before women command the same valuations and cheque sizes as their male counterparts. “It’s probably going to take a couple of years before we see women founders raising very large rounds of capital. This has to become an agenda for the entire industry,” says Sequoia’s Chopra.

It’s not that women cannot handle more money. In fact, studies have shown that women-led companies are better financial performers. A BCG report reveals that start-ups founded or co-founded by women generated 10 per cent more in cumulative revenue over a five-year period. For every dollar of funding, these start-ups generated 78 cents, while male-founded start-ups generated less than half—just 31 cents.

“That’s because women are always more capital-efficient. They can take a small cheque further, whereas a man would’ve spent it,” says IAN’s Ruparel. “Women are always thinking of budgeting and optimising available resources.”

But as India sees more role models, from women unicorn founders to women VCs and angels, the benchmarks may be changing. The likes of Nykaa’s Falguni Nayar, Rivigo’s Gazal Kalra, OfBusiness’s Ruchi Kalra and several others, “send a very strong message to aspiring female founders”, says Chopra.

So, if you’re a young woman in India, the time to start up is now. Avaana Capital’s Bansal sums up with some handy advice. “I would urge women entrepreneurs to find co-founders who can complement their skills, start with the team, and build. Find your tribe early,” she says.

@mittermaniac