Experts predict that women will struggle to raise funds even more than usual.
TORONTO, ONTARIO — Members of Canada's tech community are
concerned that the sector's recent downturn will exacerbate the burden on
female founders, who have long trailed their male counterparts in fundraising.
Their concerns come as the global technology sector suffers
from reduced spending as consumers return to pre-pandemic habits. The sector is
also dealing with widespread layoffs, falling valuations, and founders
struggling to raise capital as investor enthusiasm fades.
"One investor put it this way: 'It's a bloodbath out
there,' but... the way I would put it is that the fundraising environment went
to hell in a handbasket," says Caitlin MacGregor, founder of Waterloo,
Ont.-based Plum.
She's been pitching a new round of funding since September,
after previously raising $11 million. While she is confident she will raise the
funds she requires, she and others believe many women will struggle even more
than usual to accomplish the same feat.
"Women get a smaller percentage of available capital,
and as that capital shrinks, the portion that goes to women shrinks even
more," says MacGregor.
"This means that the percentage of companies that will
fail because they did not receive funding will increase."
Briefed is a data firm based in Waterloo, Ontario. In 2021,
when the market was still soaring, Canadian tech companies received $14 billion
across 701 deals, indicating that businesses expected their massive pandemic
growth to continue. By 2022, investment activity had dropped to $9.7 billion
across 417 transactions.
This year has so far generated $176.9 million in investments
across eight transactions, but many believe 2023 will end even lower than last
— and if current trends continue, women will receive only a small portion of
the available cash.
Women-owned businesses received only 2.3 percent of all
venture capital (VC) funding available globally in 2020, down from 2.8 percent
in 2019.
"The current market situation is not going to
help," says Rhiannon Davies, general partner at Sandpiper Ventures, a
Halifax-based seed stage venture capital fund that only invests in Canadian
companies led by women.
She noticed a rush of capital, competitive deals, and huge
valuations early in the pandemic, resulting in companies going public and
investors achieving lofty exits.
The frenzied market increased investments in women and other
under-represented founders, but Davies said it was proportionate to the overall
funding wave.
"The ratios are not changing fast enough. "We're
not changing the dial," she explained.
"There is still a tendency to make token investments in
women's technology rather than a genuine shift to say this is the direction we
need to go."
Many attribute those token investments to funders putting money
behind people they already know or companies that have followed the same path
as others in which they have previously invested successfully. Others believe
that prominent schools, employers, or incubators that have previously produced
successful companies and are listed on a founder's resume can also influence
funding decisions.
Davies describes it as investors "clinging to what they
know" and "repeating the same patterns."
MacGregor refers to this as "implicit bias."
"They're looking at whether this person has worked at a
tech company or in the industry in which they're launching a company, whether
they've raised funds before, and whether they've successfully exited a business
before." She stated.
"A lot of the time, when women are starting out, they don't
necessarily fit the pattern right out of the gate."
They're also less likely to pitch investors who look like
them. According to the National Angel Capital Organization, women made up only
19.4 percent of Canadian VC partners in 2019 and 27 percent of Canadian angel
investors in 2021.
According to research from the Silicon Valley-based Kauffman
Fellows Program, female founders are twice as likely to invest in a female-led
startup.
To address the lack of funding, several venture capital
funds focus solely on women-led businesses, but Davies says they are inundated
with hundreds of requests and can often only fund a dozen.
"There is tremendous demand, but it takes a tremendous
amount of work for an investor to truly effectively evaluate and not leave any founder
out."
When Toronto entrepreneur Liza Akhvledziani launched rent
payment platform Chexy in late 2021, she had little success in courting funds
aimed at female founders.
"Perhaps it's because they're overburdened with demand
from other female founders and there are just fewer of them," she
speculated.
She eventually received funding from early-stage investor
Antler, but finding someone to hand over cash was a "grind" before
that.
Akhvledziani believes her difficulty stems from the recent
market downturn, which has exacerbated Canada's overall lack of funding and
resistance to backing early-stage companies.