2021 Investment Landscape
By Julia Elliott Brown, Founder and CEO of Enter The Arena
As we step into 2021, we’re all keeping our fingers and toes crossed that this year will bring some good fortune. One thing I know is that innovative start-ups will be the driving force behind the recovery and growth of our economy, and that female founders will play a huge part in that.
The long-term trends for female founders are positive. In the UK, the total number of female founded visible scaleups doubled in the last year, proving that more talented women are breaking through.
From an investment perspective Europe is on track to have a record year for investment in 2020, with funds invested estimated at $40bn, despite global events, with London remaining the hub of activity. The tech sector leads the way, namely fintech, artificial intelligence, digital security and blockchain, as well as of course, healthcare. Round sizes are getting larger, and mega deals have in part driven the numbers up, including female founder led Karma Kitchen who raised £225m.
Yet 2020 was a challenging year for female founders. The pandemic disproportionately affects women in business, who take on more than their share of home schooling and care for the elderly, alongside the pressures of work. Data so far, which may change as deals closed late in 2020 get reported, shows that globally the proportion of funding going to female led start-ups dropped from 2.8% to 2.3%. Not the direction we want things to be moving in. We’ve also seen fewer women leading new ‘unicorns’ ($1bn+ valuations) – only 8% this year – plus several high-profile female founders coming under great scrutiny and forced to step back at the companies they created.
In times of uncertainty, it’s easy for investors to follow pattern recognition – investing in what they know and feel most comfortable with. And whilst male investors still dominate the world of venture, that can prove a challenge for female founders.
First time fundraises have been tough to secure since the beginning of the pandemic. Although total funding in UK start-ups fell by 10%, the amount pledged to first time fundraises dropped by 47% as investors put their money into supporting their existing portfolio or towards more established businesses.
That investment approach was totally understandable in 2020, but we will see more money flowing back into early stage raises in 2021. Smart seed stage investing offers great potential long-term returns and generous tax breaks for angel investors. Many accumulated savings during 2020, or even made huge gains through their investments in hot sectors and won’t want to sit on that cash much longer.
The female founder community shares my optimism. The UBS investor sentiment survey in Q320 showed that female business owners are more optimistic about the economy (66% vs 54%), and also on their own business (76% v 66%) than men, and that 39% of female business owners are planning on investing more in their business this year. The survey highlighted that 89% of those women also want expert guidance. And female founders are wise to want more support. Because only the very best start-ups and entrepreneurs will get funded in 2021. The investment industry has raised the benchmark. We must empower women to navigate the fundraising ecosystem effectively, hone their financial literacy, develop their communication and negotiation skills and build their networks. That’s the only way that we can overcome the challenges that this pandemic has presented and continue the long-term trend of redressing the gender funding gap.