Do female entrepreneurs seeking venture funding get discriminated in Norway?

A McKinsey study shows that top-tier companies with gender diversity perform 15% better than their competitors, and top-tier companies representing ethnic diversity outperform their competitors by 35% *. Therefore diversity in businesses and entrepreneurship should be highly desirable.

In Norway, however, only 2 % of all venture funding goes to companies founded by women, as opposed to 80 % to companies with male founders. The remaining 18 per cent goes to companies where at least one of the entrepreneurs is women. These figures are alarming and raise many questions. One may wonder why so few of scale-up companies are founded by women and if then, supported by venture funding.

The lack of diversity among entrepreneurs and business owners is currently a hot discussion topic in Norway. The ongoing advertising campaign from DNB seeking to raise awareness of female ownership in Norwegian companies is an example. Recently some venture funds are established that aim to target female entrepreneurs and entrepreneurs with minority backgrounds. This seems to be in response to a prevailing opinion that the investor communities discriminate against these groups and reject them more often than their peers.

We, as a society benefit by facilitating increased diversity in the entrepreneurial community and to help more companies achieve high growth. Still, I think it is worrying that measures are implemented before the real cause of the lack of diversity among entrepreneurs of scale-ups is identified. Without good insight and accurate analysis, we risk finding the wrong solutions.

Interesting findings

The latest report from Innovation Norway on the development of female entrepreneurship in Norway contains some interesting findings. These can help us understand why so few female entrepreneurs achieve high growth and later venture to finance for their companies.

In its statistics on companies with female entrepreneurs, the report uses the following categories: “the innovative entrepreneur”, “the dentist, the hairdresser and the electrician”, “the free and creative”, “business on the side” and “mover, cleaner and caretaker”.

“The innovative entrepreneur” is the entrepreneur who starts with a good idea, often based on technological insights, and who later turns to seed and venture financing for further growth. The champions for increased diversity are most concerned with this category.

The report shows that most entrepreneurs drop out along the way from developing an idea to a company with high growth potential and that far more of these dropouts consist of companies started by women than men. Yet, this conclusion is based on statistics from all the entrepreneurial categories mentioned above. This means that the figure for the female drop-out rate includes individual companies as well as private limited companies. The dropout statistics thus tell little about the differences between high growth companies started by men versus high growth companies started by women.

Lower growth and greater competitive exposure

Women usually enter industries with lower growth and greater competitive exposure than the industries that male entrepreneurs tend to choose. These industries are often not based on new technology, and companies are generally less scalable. Typical examples are shops, private healthcare and artists. These types of entrepreneurial companies, unlike ideas and concepts based on technological insights, are less suited to generate high growth.

There may be several reasons why women mostly choose to start businesses in these industries rather than in industries associated with technological innovation and high risk. It is known that women are underrepresented in educational fields such as science, technology, engineering and mathematics. Less known is the fact that when you follow women from higher education (51%), higher education (33%) to employment (26%) and entrepreneurship (14%) we find (as the figures in brackets show) a large drop in the real sciences — and technology-based industries. By leaving these industries prematurely, women give up many opportunities, also to later try themselves as entrepreneurs and achieve great growth.

Male-dominated environments

Innovation Norway’s report suggests that this is because the work environment in technology-oriented industries and the investor environment is male-dominated and uses a masculine language, something women do not master.

I am sceptical to this conclusion.

I am one of the target group this discussion is about. I am a female non-western immigrant to Norway with a doctorate in physics from the University of Oslo and management experience from the technology sector and typical male-dominated environments. Yet I am not part of the dropout statistics, as I enjoyed working very well in the technology sector for more than 14 years. Three years ago, I became an entrepreneur to create a digital service platform to promote sustainable fashion consumption.

Did I experience more stringent requirements than my male colleagues when I sought funding from external investors? The answer is no / maybe. I interpreted rejections as I had sometimes gone to the wrong investor. At other times it was too early to apply before I could show steady and repetitive growth. A few times, I was uncertain about the reason for the rejection, but still did not feel like speculating in discrimination as the cause. The feedback I requested and received was always valuable for further development of the company and for adapting the communication towards other investors.

I realize that my experiences are not necessarily representative. Regardless, we do not have enough data to state that women do not receive venture funding because of discrimination. I am concerned that the measures like providing easy access to venture funding for female entrepreneurs will neither contribute to more successful entrepreneurship nor that more investors invest in diversity.

Requires certain personal qualities

Creating a successful innovative entrepreneurial business is hard work and very risky no matter what background the entrepreneurs may have. Entrepreneurship behind high-growth businesses requires individuals with certain personal qualities, business sense and an ability to build teams and networks around them.

It’s no wonder the chances of success as an entrepreneur are as low as 10%.

Getting venture funding for further growth as well as maintaining investor relations is very time-consuming activity This requires a good strategy, communication skills and a lot of practice, failure and learning.

We do not know why so few women start technology-oriented businesses in Norway. If we know the problem, we can identify and put in place the right measures and increase that proportion. With increased diversity among entrepreneurs starting technology-oriented businesses, we will eventually also get diversity among entrepreneurs with growth companies that are backed by venture funding.