The odds sadly say No!

by Lionesses of Africa Operations Department

Last weekend we looked at our latest South African Women Entrepreneurs Job Creators Survey launched by the Lioness Data Unit (sponsored by ABSA and once more working with New York University to dissect the information), announcing (amongst other things) that of the 1,340 women entrepreneurs surveyed in RSA, they employed a massive 8,503 people, mostly women, and because of this have an incredible impact across their local communities. A clear sign of the multiplier effect of Lionesses (here).

Since then we have dived deeper into the results and with the President of South Africa, Cyril Ramaphosa’s words ringing in our ears from his 2022 State of the Union Address (here): “We all know that government does not create jobs—business creates jobs.”, we recognise that as our research confirms: “An important impetus to hire is access to funding and confidence in future access to external funds.”, indeed “…[those] who received external financing in the past 12 months were currently looking to hire, on average, about twice as many employees, and had added roughly twice as many employees over the past year, as those who had not received external financing.”, yet “Issues around financing presented the biggest challenge, with 42% of respondents citing access to capital, maintaining consistent cashflow, and ensuring salary bills could be reliably met among the biggest concerns.”

So what do we know about the financing of Lionesses? For that we turn to our fabulous Lionesses Business Confidence Report for 2022 (here) and the 2022 Index (here) both backed by AfBD with our friends at NYU doing their usual late night, high powered dissecting.

“50% anticipate that financial institutions will be willing to provide loans or credit to their business in the next six months than lack confidence in their willingness to provide funds (27%), while 22% were neutral.”, so that’s great news, we are still confident that Banks and Funds will come to the party. But did they?

It seems No!

Looking to the past sources of funds it paints a sorry future for such optimism: Retained Company Earning and Owner’s Capital (both in the ‘Bootstrapping’ camp) were a massive 44% and 49% for 2022 (2021 figures: 45 & 39); Bank loans 9% (6% in 2021); Overdraft 9% (7%); with VC coming in at 9% (8%). This matches the many complaints we have often heard from VC and PE investors and indeed from Banks, namely “We look, we advertise, we plead for more women to apply for our funding, yet always end up with a book full of male businesses - we just can’t find them!” Numbers from ‘Africa: The Big Deal’ confirm here, either women were not found or pushed away or ignored, and the numbers are shocking. Companies with a female CEO raised only 7% of total funding, but a single female or all female founding team raised only 1%, in 2021. Given women’s businesses are not 1% (or even 9%) of the total of all businesses - there is clearly a massive disconnect. Numbers don’t lie.

We think all can agree (as here) that Albert Einstein was correct when he said that “Insanity was doing the same thing over and over again and expecting different results”, perhaps our inspirational Lionesses for all their confidence, were simply battle weary and had just given up applying. If one has had very little access to the finance world and then finally got through the door at which point there was a “No!”, or worse, an aggressive interview process followed by a “No!”, or worse still, a long drawn out process with many interviews, discussions and questions, followed by a “No!”eventually all of us would either stop knocking on doors, or start asking ourselves why we put ourselves through this pain.

But why are there so many rejections for women in spite of this confidence amongst our members? The fascinating Harvard Business Review paper entitled ‘Male and Female Entrepreneurs Get Asked Different Questions by VCs - and It Affects How Much Funding They Get’ by Kanze, Huang, Conley and Hi, gives the answer (here): “According to the psychological theory of regulatory focus, investors adopted what’s called a promotion orientation when quizzing male entrepreneurs, which means they focused on hopes, achievements, advancement, and ideals. Conversely, when questioning female entrepreneurs they embraced a prevention orientation, which is concerned with safety, responsibility, security, and vigilance. We found that 67% of the questions posed to male entrepreneurs were promotion-oriented, while 66% of those posed to female entrepreneurs were prevention-oriented.” Ask any Casino owner if they would accept such odds if in their favour and especially over time, and they would tell you this would create a very profitable Casino indeed. The secret is of course ‘over time’ (a bit like compound interest), yet such questions ‘over time’ not only cut out many of the women but also ensures that those supported become not only stronger, but visibly stronger. Being visibly stronger means that in the future investors look to what has worked in the past - and Bingo!, male run businesses keep on topping the league, so let’s keep financing the males! QED (this self-confirming system is only going to get worse as AI grows stronger). Sadly inspite of this report being published in 2017, these same questions are being asked even now in 2022 (why more women in VC/PE are so desperately needed).

Think this can’t surely make a difference… Here are some of the comparisons they found:

[Have to admit - we’re not even sure what a Turin Test is!] They found that “…the majority of entrepreneurs (85%) responded to questions in a manner that matched the question’s orientation: A promotion question begets a promotion answer, and a prevention question begets a prevention answer. This pattern of behavior perpetuates a cycle of bias in the Q&A process that can aggravate the funding disparity. By responding in kind to promotion questions, male entrepreneurs reinforce their association with the favorable domain of gains; female entrepreneurs who respond in kind to prevention questions unwittingly penalize their startups by remaining in the realm of losses.” (The casino owner simply cannot believe his luck - the wins keep mounting up!)

If Africa is going to grow jobs at the speed that the expected increase in headcount over the coming decade demands (South Africa alone needs to create 11 million additional jobs by 2030 to keep level), Governments, DFI’s, Banks (who get a huge chunk of their money from DFI’s, see one example here and AfDB’s review of Trade here), and VC/PE Funds must all recognise the job creation power of women owned and run businesses and must recognised the success of backing women owned and run businesses (as confirmed by the Boston Consulting Group here). They simply must view women business owners differently from how they do now. Simply must, before we all through exhaustion give up for ever.

A good start surely must be by levelling out the odds, by treating all the same by asking the same type of questions.

No?

Stay safe.