It’s well documented how much harder it is for female founders to access capital than men. As funding rounds reached new highs in 2021, the amount of capital going to all-female founding teams in Europe actually dropped — to just 1.1%, from 2.4% in 2020.
But there’s another gender gap that isn’t getting enough attention — the equity gap.
It refers to the fact that female founders often own far less of their companies than men, and it lies buried in their closely guarded cap tables. That gap will determine the future of Europe’s startup ecosystem.
Less equity means less of a payout on exit day, and given that successful founders-turned-angel investors are important sources of capital for the next generation, it also means fewer female angels.
Overall, it comes down to wealth generation
To get a better idea of how big the equity gap is, Sifted and Beauhurst took a peak at the cap tables of the five most valuable VC-backed companies with a female cofounder in the UK.
Beauhurst compiled the data from Companies House filings, and since these are published quite infrequently it’s possible that a female cofounder's ownership could be even more diluted after subsequent raises.
Even so, the "gap table" is stark.
Female cofounders have a much smaller slice of the pie
We analysed cap table data for Lendable, DNAnudge, Multiverse and Pollinate — the four most valuable VC-backed private companies with female cofounders in the UK for which data was available.
Aggregating the share ownership data for the male and female cofounders at all four, we found that the men, on average, hold almost five times as much as their female cofounders.
So why exactly do female founders own so much less equity than their male cofounders?
Female founders are coming on board later
In two of the five examples — Lendable and Multiverse — female founders Victoria Van Lennep and Sophie Adelman joined the startup later than their male cofounders, and thus got a smaller chunk of the equity pool.
DNAnudge and Pollinate declined to comment, so it’s harder to know why their female cofounders hold so much less equity than the men.
There were several other contenders for the data, but in most cases, the female cofounder had left the company after the first couple of years.
Female founders’ equity dilutes over time
As startups raise more equity, there’s a trend of female cofounders’ ownership becoming more diluted.
In a separate recent analysis of the ownership of 26,494 founders of high-growth UK companies, Beauhurst found that the point at which male and female founders own the greatest proportion of shareholdings differs widely.
They found that female founders own the largest average (57%) of shareholdings at the seed stage, while male founders own the largest average stake (47%) at the established stage, after venture and growth — when the stakes are much higher.
Zoë Chambers, partner at Frontline Ventures, says that many female founders are focused on delivering success once they’ve raised money, “so they don’t want to overvalue or overpromise and underdeliver” and accept slightly more dilution.
“And because there haven’t been a lot of serial female founder exits over time, in order to get that help from advisors, they will often give out equity. They understand that there will be areas that they don’t have expertise,” she adds.
It’s not all about share ownership
Beyond the share ownership data available in company filings, when a female cofounder comes on board they will also negotiate a stock compensation package.
A few of the companies listed said that their female cofounders’ option plans helped beef up their company ownership.
But none of them confirmed that this made them equal cofounders.
Plugging the equity education gap
Adding to the problem is that stock compensation packages are down to negotiation — which can often disadvantage female founders as much as the equity negotiation process.
“Just as networks might be not as strong for female founders, there's also less education around these negotiations — so there's a possibility that female founders might ask for a lesser valuation or give away more equity,” says Jen Phan, cofounder and CEO of creator economy tool Passionfroot, who also has an investor background.
“It’s just because there are fewer female cofounders or other founders that can share their experience. So I think you need to have a much bolder, bullish approach when it comes to your equity as a female founder.
“I think I was in a very privileged position having worked as a VC before, so I had an overview, but this is rare.”
In order to bridge this gap, cofounder and CPO at Entrepreneur First Alice Bentinck believes female founders need to make a deliberate effort to benchmark against what male founders would be asking for.
“Just knowing the existence of this equity gap is critical as it highlights the need to negotiate ambitiously,” she says.
VCs can help level the playing field, too
Where female founders may have a smaller network of compatriots that can share advice on equity, their investors can act as a useful benchmarking resource.
“One of my female founders came to me before they raised their Series B and asked me to take an anonymous sample of our most recent Series B raises and tell her what the founder equity was at the end of each raise, so she could have a benchmark in her head,” says Chambers.
And for VCs, the first key step towards narrowing the equity gap is collecting and confronting the pricing and ownership data across their portfolio companies, founders say.
For investors, we need to be aware that subconscious biases could still exist
While some differences in equity ownership may be explained by factors such as time served, if patterns begin to emerge according to founder gender, they will know there’s a bias that needs to be addressed.
“For investors, we need to be aware that subconscious biases could still exist,” says Bentinck.
She believes it’s vital for VCs to measure founder demographics, valuation and equity ownership data across their portfolio companies to work out “where systematic differences by gender are observable, a bias exists and needs to be acknowledged”.
Breaking the vicious cycle
When successful startups reach exit stage, founders often reinvest their newfound wealth into the ecosystem — whether that be through angel investing in other startups, becoming fund LPs or founding another company.
But if female founders don’t have enough equity to make those trickle-down investments, it makes gender bias in the ecosystem more difficult to shift.
“Overall, it comes down to wealth generation,” says Jen Phan. “If you have a successful exit, the first key hires as well as cofounders can then take their wealth and invest back into the ecosystem — but if that wealth hasn’t been equally allocated, then we’re going to keep on repeating the same patterns,” she adds.
Amy O’Brien is a reporter at Sifted. She tweets from @Amy_EOBrien
Note to readers: We included Curve in initial calculations but a PR later confirmed that Anna Mostyn Williams was no longer a cofounder.