Anyone see what’s wrong with this picture?
– 0.8% of VC funding was afforded female led businesses in London
-At current rates, for all-female teams to reach even 10% of all deals will take more than 25 years (until 2045).
-The Alison Rose Review of Female Entrepreneurship published in March 2019, highlighted that up to £250 billion of new value could be added to the UK economy if women started and scaled up new businesses at the same rate as men
Karen Holden, Founder of A City Law Firm, a Legal 500 award winning practice.
As a female founder that set up 14years ago I had no idea where to turn for advice & support. I had £5000 a suitcase of files and no clue. I was also, if you can believe this as a lawyer, asked by a potential legal partner ‘wasn’t I at an age where I would be considering a family ‘; I was starting out in a male dominated City & sector, so it was daunting. I didn’t let anything stop me though even where there were admittedly tears and battles to be had. If a door closed, I went on to another or bashed it down, but it was exhausting, sometimes demoralising and hard to stay motivated. Now there is so much information on the internet where do you start; there are many offering to broker investment for exuberant fees how do you know who to trust? Has much changed in the way females are perceived, treated and what we are achieving?
I look back at the last 15 years and yes we have seen changes and progressive movement, more is definitely still needed so how can we work together to change this same old conversation !! I want to remove the barriers and break the mould as I am a disruptive, innovative female lawyer & founder and I want to change things, working with my fellow male and female peers to scale female businesses.
Equality Act 2010
The decade began with the Equality Act 2010 coming in to place, its sole objective to afford legal protection from discrimination in the workplace and wider society. This Act brought together existing legislation, including the Sex Discrimination Act 1975 and the Disability Discrimination Act 1995, to achieve one simple, combined Act.
That said whilst this law is there to protect women, indirect policies and actions, can be hard to evidence and breakdown. Women, often are afraid to lose their roles, so will not challenge them and apply this law. As such whilst the law is there as a mechanism to protect us, after a discriminatory act, culturally we need to have workplaces embrace non-discriminatory practices from the get-go and encourage employers to help support equality and fair working practices as the norm.
Gender Pay Gap Reporting regulations 2021.
The Equal Pay Act of 1963 came into afford women the right to earn equal to that of their male counterparts, but that didn’t happen everywhere. This law could only be used to issue a claim, if you became aware of the disparity, but often this is never discovered. As such, to resolve and enforce this act of discrimination, the Gender Pay Gap Reporting regulations came into effect in April 2021. This requires organisations in England, Scotland, and Wales with more than 250 employees to calculate and publish the pay gap between male and female employees on an annual basis starting from March/April 2022. It is hoped this will shine a light on the differences and expose discrimination, but more so in the long run harmonise pay as employers are to now be held accountable.
What are Female Founders experiencing
What I have I noticed as a solicitor helping founders through investment rounds and speaking at events?
- Women rarely attended the mainstream pitching events
- Women are still criticised for asking too little and they will only ask for the exact sums needed (venture capitalists [VCs] and banks were saying ask for more)
- If a VC shot down the pitch women often took this hard rather than fighting back
- VC’s and many funds would drill down a female pitch far more extensively than the men
- Women overthink – they need 99.9% of the figures and facts before they go for it – but having 75-80% sometimes is enough
- Women are cautious and pedantic, they are fully motivated, committed, and ready to go without being blasé about investor monies
I have worked with many businesses and have seen their success stories and how calculated risks can reap rewards. I want to help these businesses grow and if we can help change the dynamics and work with our strengths this is what I want to be doing. I set up the www.femalefoundersgrowth.com program to do just this – not just investment, but professional advice, support and bringing partners to the table that have a genuine desire to help female founders.
What challenges did I face when I started A City Law Firm, that I hope others can avoid or learn from?
When I started my career, I faced questions about when I would get pregnant; I faced harassment and bullying, even sexual advances from male bosses; so, I decided enough instead I will do it my way. I always worked and perceived myself to be a business owner and solicitor not a woman in business, but of course I noticed I was treated differently by some and in some circumstances, but if I was knocked back or treated differently, I didn’t care. I just fought past it and tried alternative avenues. We need to dust ourselves off and get on, there will be knock backs throughout.
I am asked ‘Why do women need a gender specific program’
We want to encourage equality, so we need to change who is in the room; improve the confidence of women so by brining partners men and women into the program who are proactive about female founders this starts everyone on an inclusive planning ground. A safe and proactive environment means they can thrive and be ready if a VC tries to later knock them back. The topics will largely be the same, but we know women, by in large, are not the same risk-takers so talks and advice are pitched around exactly that; and women want to know and we will be asked the detail so preparing this, an understanding of this and being prepared will help;
It has not been easy running my own business, a family and setting up this program. Capacity and time to have all the calls and follow-ups, is draining as any founder setting up a business will appreciate, but I am passionate about this so setting time aside has been vital. My role is to convince the female founders that this is not just about more coaching sessions, that it is real bespoke work that every business needs to operate has also been a challenge and that without legal or tax investors won’t move to the next level, so the foundations are as essential as the money.
Is it all about the money?
As a woman running my own business, I have seen many ups and down in establishing and scaling my business. I advise thousands of businesses getting ready to start, scale and seek investment right up until they exit or sell. It is never easy and there are always ups and downs, but the market is vibrant right now; investors are keen to enter the UK market and female founders are seeing more active interest than ever before. Fundraising for many businesses is vital so being prepared is likewise the key. No more so than for start-up technology companies who burn through a considerable amount of money, especially when pre-revenue. So, what are the key considerations when trying to raise capital for your business.
- Look at your options
Over the years we have seen many different businesses turn to equity financing without exploring the different options which may be available. For many it is seen as the easy option, but this is not necessarily the case. Founders can use other offers simultaneously or as an alternative: such as debt financing (where you do not give up a share of your business) these can be with high street or commercial lenders which are displaying commercial rates presently or maybe you qualify for grants (essentially free money) as the UK offers many. Businesses should also consider whether there is R&D relief available which can result in a cash payment based on funds you have spent on R&D.
- Due diligence on your business
It is important that you look carefully at your business and company from the perspective of any potential investor. As part of any investment process, you can expect a degree of due diligence. This often takes the form of legal, financial, and commercial due diligence. The extent and volume of due diligence does depend on the amount being invested. It is however important to try and identify swiftly potential areas of concern. So, take a look in the mirror and be prepared with concise, executed documents, answers to their tough questions and don’t forget above all to impress upon them your unique selling features, experience and passion.
Areas of legal due diligence can be summarised as being able to respond and address the following key areas:
– do you have signed and suitable contracts with all members of staff employed or otherwise. These have suitable confidentiality clauses; protects the businesses intellectual property and holds suitable restrictive covenants?
– do you have signed contracts or valid terms and conditions with all customers and also your suppliers?
– do you have an agreement regulating the founders, a shareholder’s agreement is essential for any business?
– have all shares been properly allotted and transferred?
– have you filed everything at Companies House that should have been filed?
– has someone been promised something from the business, such as shares, which isn’t in writing or reflected at Companies House?
– is there any dispute or litigation or investigation or any risk of the same?
– who owns the intellectual property of the business and how can you prove this?
– have you got any consent or license or regulation you need to sell your product or service?
– have you got a commercial property? Have you got a commercial lease in place or agreement to use the space?
– have you considered Data Protection carefully?
– have you registered and protected your IP?
This is just a taste of the legal questions and documents that could be requested from you, that should be carefully audited; updated and executed to protect the business
- Is it the right investor?
So often founders neglects to consider whether the potential investor is a good or suitable fit for the business. We would encourage all founders to carry out their own level of due diligence on any potential investor. By selling shares in your business to someone you are creating legal rights and obligations to that shareholder. With any business there are the inevitable hard times and difficult conversations. Having a suitable investor who is a good fit for your business makes those conversations a bit easier. It doesn’t dilute your obligation or legal duties not to unfairly prejudice them or act in breach of your fiduciary duties, but it may make it a bit easier to address and remedy.
There are many different types of investors and each fit different types and scales of businesses. Depending on the size and stage of the business this may be venture capital, private equity, angel investors, trade investors or friends and family.
Some of the due diligence you should be doing on any potential investor and questions you should be asking are:
– what are the investors exit plans? Are they aligned to yours?
– what is there and your expectations of a return?
– what other companies are in the investor’s portfolio
-what is the length of the fund?
– what is the impact or sector of the fund?
– how involved does the investor want to be?
– how experienced if the investor?
– do they benefit from EIS have you considered this?
– what demands are they making?
- Legal Documents
The documents you can expect to receive as part of an investment round is:
- A subscription agreement or investment agreement. This regulates the terms upon which the investor is putting the funds into your business. This is likely to include warranties or promises about the business and your company so these need to be carefully scrutinized.
- A shareholder’s agreement. This regulates the high-level operations and running of the business. It governs the relationship between the shareholders. This document typically includes ‘reserved activities’ or ‘investor consents’ which are the list of activities that the company can and cannot do without the consent of the investor. This is where you negotiate
- A disclosure letters. This deals with specific disclosures against any warranties so you declare anything required so it’s not later held against the company, as it was on the table.
You may also receive updated service agreements (employment contracts) for the founders governing their role in the business and usually include provisions on payment and expectations on services.
Why is there still such a difference in investment afforded to male owned businesses to those founded by all women?
UK VC & Female Founders report, commissioned by Chancellor Philip Hammond at Budget 2017 and undertaken by the British Business Bank in partnership found
- for every £1 of venture capital (VC) investment in the UK, all-female founder teams get less than 1p, all-male founder teams get 89p, and mixed-gender teams 10p.
- venture capital investment in start-ups with female founders is increasing but progress is very slow.
- 83% of deals that UK VCs made last year had no women at all on the founding teams.
One would hope things have changed, but data showed in 2020 of the £12bn of UK VC investment invested, companies with an all-female founder team would have received just £120.1m. Mixed-gender teams would have seen £1.and all-male counterparts, just shy of £10.7bn. This again though we fear if more about applications rather than decisions. A report on acceptance / rejection would be interesting but not easily put into context, but essentially female founders securing investment is increasing but still far apart from that taken up by all male founder businesses and the question should be why are there fewer female founders seeking investment?
Are there less in general? Do they prefer to self-fund and consider debt financing? or are they being rejected. Whatever the reason we need to encourage and support all businesses to scale up and become successful and particularly entice female founders into the investment ring.