The corporate finance ecosystem underwent a (not-so) small revolution in 2022 : that year, funds invested more in Series A in start-ups with mixed teams than in start-ups led by all-male teams! Have investors (finally) been bitten by the parity virus? If this is indeed the case, will they pass it on to the entire business fabric? We talk about it!

The rise of ESG criteria

To make their decisions on whether or not to finance a project, investors analyse the file according to a series of criteria to assess the potential return on investment. There are financial criteria in the strict sense of the word and then there are non-financial criteria. Among the non-financial criteria, some relate to the leadership of the project leaders and relate to the affectio sociatis (which could be translated as the confidence that leaders inspire), others relate to the corporate culture or the policy of anticipating new risks. And then, among the extra-financial criteria, there are ESG criteria. E, for environment. S, for social. G, for governance.

The parity of the management team is part of the G of governance, alongside the independence of the board of directors, the fight against corruption, decision-making methods, etc. But we also find the issue of professional equality between women and men in the S of social, with all the inclusion mechanisms, working conditions or skills development policies.

ESG criteria are experiencing a tremendous rise in power : in 2019, 18% of investors took them into account ; Today, 72% of them include them in their file analysis grid. From an ESG perspective, the first thing that jumps out at investors is the composition of the company's management team looking for funding. It is only a short step for these investors to condition their financial contribution on gender equality . Some do so, imposing parity clauses on the companies they rely on.

But why do investors care about gender diversity ?

What could have bitten these pros of numbers, these millimetric experts in the measurement of ROI, these princes of accounting rigor who are said to be not really used to sentimentality ?

The first avenue is that legal texts (quotas, professional equality index, anti-discrimination laws, European directive on pay transparency, etc.) are having an effect. Compliance  is closely scrutinized by investors who have a lot to lose when they are in any way involved in a regulatory violation : they can lose their right to collect and manage investment money, lose accreditations and see their reputation damaged in an environment where trust is is a leading asset. Laws for gender equality in business are not new, but their enforcement is now much more rigorously enforced by governments, the media and citizens. Are investors afraid that one day, a non-parity Executive Committee or discriminatory wage gaps will be as embarrassing as an act of corruption or insider trading?

The second option is that investors have read the abundant documentation now available on the links between gender diversity and performance. Gender diversity is correlated with more robust decisions, higher innovation potential, healthier management, more sustainable development prospects, etc. For an investor, this is a rather tempting program.

Third option : non-mixity is increasingly perceived as a risk. When you're an investor, you always prefer controlled risks! In the talent market , for example, it now seems impossible to do without an inclusion policy if you want to attract candidates and retain employees from the new generations. According to a recent report, 76% of employees would consider leaving their company if it showed unjustified gender pay gaps. The same report indicates that 25% of women who resign cite their company's lack of commitment to gender equality as one of the reasons for their decision to change creamery. Other risks are pointed out : reputational risk in the event that a company quietly maintaining a sexist culture were to be name-shamed on the networks and boycotted by customers ; psychosocial risks, which are indeed higher in companies suffering from a lack of diversity and which can generate direct and indirect costs and destabilize a company in the long term.

Investment as a driver of gender diversity in companies... Up to a point !

Awareness is there, as evidenced by the striking figure from the BCG-Sista study: start-ups with mixed teams at the helm are 1.4 times more likely to obtain funding than start-ups with an all-male management team. But two nuances must be added:

1/ If we take the total amounts invested, the strictly male teams capture 88% of the funding. To understand this, we must distinguish between " series " :

• Seed or Series A fundraising makes it possible to finance the seed and optimization phase. The amount can be estimated at between 1 million and 5 million euros.

• A B series corresponds to the first stages of the change of scale : the company is given the means for its commercial development. The amounts are around 5 million to 10 million euros.

• In Series C, you aim high and you see far : the company industrializes, acquires competitors, establishes itself internationally. Funding amounts can soar.

Women's teams and mixed teams are mainly represented in seed and A-series, so even though there are many of them, they accumulate relatively small amounts of funding. On the other hand, in series B and C, companies represented by 100% male teams are over-represented. So, the big sums go to companies founded and run by men.

2/ Even if mixed teams are the most likely to be financed, all-male teams follow closely behind them in terms of the power of seduction exerted on investors. On the other hand, all-female teams drop outright : their chances of raising funds are 4.3 times lower than those of teams made up of 100% men. In other words, a men's team already has a good chance of convincing funders and it can go a little further by welcoming one or two women into its ranks. But a women's team is too far behind in its ability to seduce investors for bringing a man back at the last minute before the pitch to turn things around.

The glass ceiling was silver

To understand the permanence of a preference among financing actors for companies led by men, it is necessary to summon all the mechanisms at work in the glass ceiling.

To begin with, the question of sectors of activity.  Women are mostly entrepreneurs in sectors with less potential for financial value. They account for 74% of entrepreneurs in the health and social care sectors, 71% in personal services and 52% in business services. They are only 26% in the communication and information sectors and only 3% among software owners.

Secondly, the subject of ambition: twice as many women entrepreneurs are self-employed as they are company creators. In other words, most of them only create their own jobs and for 70% of these, they generate a turnover of less than €50,000 per year. Is it worth pointing out that these are not on investors' radars ? Not so much in the banks' field either, since 75% of them use personal financing to get started and self-financing to run their business. Also, the figure of 39% of women entrepreneurs is a bit of a lark : when we compare it to a population likely to join the ecosystem of financing companies with high growth potential, women only account for 10%.

Gender biases among financing actors?

But all the same, are we 100% sure that the actors of financing are free of any form of gender bias! When we know that cognitively, we are all impacted by stereotypes and that culturally, we are all immersed in an environment of differential valence of the sexes, it would be surprising if they escaped it better than the rest of the population !

Irony aside, the world of finance is becoming more and more aware of biases. He began by looking at the place of women in his own ranks. 2% of banks run by women on a global scale is depressing. 6% of female CEOs in the finance sector, not great. 9% of women among business angels , not great. 23% of women on the Executive Directors of financial companies (and 19% of the sector's Executive Directors that do not have a woman) can do better. 27% of women in the investment teams of private equity firms is too low.

But things are changing: in 2020, France Invest launched a charter to promote gender parity in private equity, accompanied by a regular barometer to measure progress. The latest edition of this barometer indicates that 90% of managers in the private equity sector expect positive effects from parity. Another study indicates that 60% of fintech players believe that more gender diversity in the finance professions can help reduce the risk of decision-making bias in the analysis of files. All hopes are allowed !

All the sources of the figures can be found here.