Why Investments in Female Startups Still Lag in the Middle East

Perhaps it comes as no surprise that funding in female led startups dropped again for another consecutive year. According to data from the World Bank, although female entrepreneurs generally outperform their male counterparts - growing at more than double the rate of all other firms - they are consistently overlooked when it comes to investments.

Out of the 583 startups that raised funding in 2023 in the MENA region, only 52 were founded by women, according to Wamda. They collectively raised $19 million compared to $52 million in 2022, a staggering 63% drop.

“I’m not at all surprised by these figures,” Nadia Gamal El Din - Founder of Rahet Bally, a femtech startup based in Egypt - tells StartupScene. “Because I’ve seen so many cases where women are not perceived as worthy of investment. There is always this stereotype, she’s a woman, she’s a mom, how is she going to balance it all? Many investors believe that there is a higher risk when it comes to investing in women, which is a disaster.”

According to Crunchbase, women only received 1.9% of all VC investments last year, which indicates that there is a long way to go before the market becomes equitable.

INVESTOR BIAS

Many women still face gender-based barriers when it comes to fundraising from investors. Venture funds, which should deploy investments solely for maximizing returns, could sometimes let their innate biases get in the way when making investments.

Female founders can attest to this. Nadia Gamal El Din, who mentors women-led startups, has seen firsthand that even if men and women are presenting the same idea, men are more likely to receive investments. “There is a huge bias that exists, and because the investors are mainly men, they are usually biased towards investing in other men,” Gamal El Din says.

While having more female investors could help balance funding, there are still too few women willing to invest in startups. “Female investors in angel networks usually have small ticket sizes,” says Gamal El Din. “But when it comes to the big bucks, you need VCs, and they’re usually run by men. At most, you will find one woman out of 10 men on the board.”

Ryaan Sharif, General Manager at Flat6Labs UAE, recognizes that there should be more equal representation in VCs. As it stands today, he states that only about 30% of VC representatives are women, which could impact investing in female startups. “A lot of the VCs are top heavy in terms of having male representation,” he says. “I think that’s something that we’ve taken a lot into account, which is just trying to make sure that we have a very balanced male and female committee when it comes to actually selecting the startups.”

With the rise of female angel networks across the region, however, he believes that it could help shift the tide, especially since their mandate is to invest solely in female businesses. “We're now seeing more female related VCs so women actually starting up a VC, getting money from LPs and their pure mandate is to only invest in female founded companies, and I think that will help move the needle in terms of seeing more female founders being invested in,” he says.

HESITANCY TO START A BUSINESS

While female entrepreneurs tend to do quite well despite the disparity in funding, many are still hesitant to launch their own startups.

Over the past few years, men have typically outnumbered women in launching new startups by a ratio of nearly six to one, according to data by Carta. In 2023, the gap got even wider, with just 13.2% of startups founded by females, down from 15.1% in 2022.

Sharif is seeing this disparity directly reflected in the number of female applicants in Flat6Labs, UAE. “Only 5% of the total application pool are actually female-founded companies,” he says. “We’re at the earliest stage, which is pre-seed and seed, and not enough women are actually applying.”

He attributes the low number of applications to hesitancy from female founders. “I think women generally prefer to go in very well prepared, and that might create a delay in them actually getting funded.”

But Wafa Al Obaidat, Founder and CEO of Playbook, an education platform for women globally, states that with investments becoming increasingly difficult for women to obtain, many are foregoing entrepreneurship all together and opting for more stable careers.

“Only about 2% of VC funding goes to women, that means that they have to pitch 90% more times than their male counterparts,” she says. “Can you imagine dealing with that kind of rejection? Over and over again? How can women handle this? They would rather get a job, especially if they’re moms, or if they have other commitments. Why would they be putting themselves through this, unless there is an incredible belief in what they’re doing or they get very creative about fundraising and they hack it?”

DOING THINGS DIFFERENTLY

Since the investment landscape is not a level playing field, some female founders have decided to take matters into their own hands, increasing their chances of getting funded.

Al Obaidat recently led Playbook in its acquisition of Women Spark, creating the largest network of female angel investors in the region. Through this collaboration, she aims to bridge funding gaps, and support women in growing their ventures regionally, as well as globally.

“I think what no one tells us is that we have to do things differently as women to fundraise and to stay in the game,” says Al Obaidat. “Women may have smaller ticket sizes than men do, but they have the ability collectively to come in strong. And Women Spark creates that experience. It’s a safe space to do business and it’s designed for us.”

Besides creating a strategic network to bridge the divide, Al Obaidat adds that women also have a role to play, from strengthening their presentation skills to learning how to negotiate and deal with rejection.

“I mentor so many female led startups on confidence, courage, self worth, and numbers so she can go inside the room and be the star that she already is,” Gamal El Din says. “She just needs to believe it, so others can believe it.”

For the most part, Gamal El Din is optimistic about the future. While the funding landscape may not change overnight, she believes that it will get better with time, especially if female founders are focusing on solving genuine problems in their startups. “The investment climate may be unstable at the moment, but I know that if there is a down, there must be an up,” she says. “Until then, it’s a good reminder that we need to create and capture value in our businesses.”