Women founders lose more when selling equity stakes

Women founders give up more in equity stakes than their male counterparts when selling to raise funds for their business

Women founders who sell equity stakes have to give up a larger proportion of their shareholdings than male founders.

The research, carried out by JP Morgan and Beauhurst, found that women founders lose 22.8 per cent of their stake on average when a business sells a stake to raise money. That’s compared with 17.5 per cent for their male counterparts. The average stake for female founders falls to 35.5 per cent after raising equity compared to 29.1 per cent for men. The same gap existed in last year’s report.

Women founders have also experienced a disproportionately high drop in investment as the economy has weakened.

The study looked at 46,226 fast-growing companies in Britain last year. It ranked the top 200 led and founded by women and found that the value of equity investment secured by women fell by 14.9 per cent between 2021 and 2022, lower than the 9 per cent fall across the board.

“We are facing a bear market for high-growth enterprises and a bumpy ride for tech stocks. There is no answer as to how long these challenges will endure,” said Anne Boden, founder of Starling Bank, which topped the list of 200 companies. “Anecdotal evidence says women shine in crisis situations. When everything is broken, people are more willing to give something new a chance. But we can’t just sit back and wait for it to happen.”

On the plus side, the report found that there has been progress in the number of high-growth businesses run by women. Of the companies surveyed, 13,255 were founded or led by women or had management teams that were at least 50 per cent female. Proportionally, this number has increased from 18.3 per cent in 2021 to 28.7 per cent in 2022.

The number of exits was also a positive marker. Exits – the sale of a majority stake or an initial public offering – by female owners sustained its increase in 2022, rising to 171 compared with 147 in the previous year. This runs counter to the number of exits across the board, which fell by 15.3 per cent. What’s more, female-led businesses also raised £5.75bn from private equity investors last year in 2,097 deals.

The highest number of female-led companies are in tech sectors – led by internet platforms, software as a service (SaaS) and data and analytics businesses. In the rankings, frontrunner Starling Bank is followed by children’s prepaid bank card and app, gohenry, and luxury goods sales platform, Lyst.

Selling stakes in your company

When selling a stake, know what equity finance options are available to you along with the benefits and risks of each. Most importantly, be sure about how much equity you want to sell. Ultimately, the ideal figure will be somewhere between what you feel comfortable with and what the investor needs to make the most of their investment.

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Anna Jordan

Anna is Senior Reporter, covering topics affecting SMEs such as grant funding, managing employees and the day-to-day running of a business.

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Equity Funding