The Funding Winter: A Deep Dive into the Challenges Faced by Women-Led Startups in India

When an unprecedented funding winter freezes a vibrant ecosystem, do all startups suffer equally? For Indian startups, 2023 has been a challenging year, with overall funding hitting a seven-year low, tumbling to levels reminiscent of 2017. As capital dried up across sectors and genres, many women-led startups struggled to attract venture capital, despite significant strides made towards gender inclusivity.

A Global Perspective on Gender Bias in Funding

India is not alone in this struggle. Globally, female founders have faced a lack of financial backing from investors, often due to gender-based stereotypes and a limited number of iconic role models. According to the PitchBook-NVCA Venture Monitor, U.S. startups with at least one female founder secured 26.1% of the VC funding in 2023, while all-women founding teams managed to capture less than 2% (1.8%, to be precise) of the total deal value. Even in 2021, a year flush with VC money, female-led startups in the EU barely raised 2% of the funding, as reported by Reuters.

The Indian Landscape: A Stark Decline

Closer to home, women-led startups raised over $480 million in 2023, marking an 80% decline compared to the $2.4 billion secured in the previous year, according to Inc42’s Indian Tech Startup Funding 2023 Report. The deal count for women-led startups also saw a significant drop, plummeting more than 50% from 238 in 2022 to just 118 in 2023. In the Indian context, this includes co-led entities with at least one female founder, all-women teams, and female solopreneurs.

Of the $10 billion collectively raised by Indian startups in 2023, only 5% was scooped up by women-led businesses, a decrease from the previous year when women entrepreneurs secured 9.6% of the total funding.

Notable Success Stories Amidst the Struggles

Despite the overall decline, some women-led startups have managed to stand out. Pixis, a co-led martech startup founded by Shubham A Mishra, Vrushali Prasade, and Hari Valiyath, raised $85 million from various investors, including Touring Capital and General Atlantic. Other notable mentions include Blue Tokai Coffee, Aviom, LEAD School, and Mad Street Den, which also secured significant funding rounds.

In terms of sectors, women-led startups in the e-commerce space saw the highest number of deals (42) in 2023, followed by enterprise tech (18) and edtech (12). However, enterprise tech led in deal volume, raising $157 million, followed by e-commerce ($114 million) and fintech ($52 million).

Gender Bias: A Persistent Challenge

According to Inc42 data, women-led early-stage startups raised the lowest funding in 2023, totaling just over $56 million, while growth and late-stage businesses secured $198 million and $189 million, respectively. Conversations with female founders and investors reveal that while gender bias may not significantly impact funding decisions at the growth stage, it remains a barrier during early-stage funding.

Investors often prioritize metrics such as growth rate and scaling capacity over gender considerations at later stages. However, initial doubts about a woman’s leadership skills, risk appetite, and work-life balance can hinder early-stage funding opportunities. Seema Chaturvedi, founder of AWE Funds, notes that investors may harbor conscious or unconscious biases, questioning the commitment of female founders due to societal stereotypes.

Unique Experiences of Female Founders

Smiti Bhatt Deorah, co-founder and COO of Advantage Club, shared her experience of not facing bias while seeking funding. However, she and her husband, who is also a co-founder, have encountered unique questions about their dynamics at work—questions that are rarely posed to male-female co-founder pairs. This highlights a nuanced aspect of gender dynamics in entrepreneurship.

Mamaearth founder Gazhal Alagh and SUGAR Cosmetics founder Vineeta Singh have also discussed the innate biases they faced while seeking initial funding. Garima Mitra, co-founder of Treelife, noted that female founders often feel pressured to defer decisions to male co-founders due to questioning in the boardroom.

Government Initiatives to Support Women Entrepreneurs

Despite the challenges, the Indian government is taking steps to address the skewed funding landscape. Union Minister Smriti Irani has criticized venture capital funds for not adequately supporting women-led startups, emphasizing the need for more investment in female entrepreneurs venturing into science and technology.

In 2022, the Department for Promotion of Industry and Internal Trade (DPIIT) announced that 10% of the SIDBI-operated Fund of Funds for Startups Scheme would be allocated for women, amounting to INR 1,000 crore. This initiative aims to enhance cash flow through debt and equity to encourage women entrepreneurs.

Additionally, President Droupadi Murmu introduced the Her Start platform to support women entrepreneurs running seed-stage ventures, providing access to essential resources. NITI Aayog’s Women Entrepreneurship Platform (WEP), launched in 2017, aims to nurture a conducive ecosystem by offering access to incubator and accelerator programs, mentorship, and funding opportunities.

Closing the Investment Gap

The investment gap for female founders is a pressing issue, but there are ways to close it. VC funds and communities that consistently support women entrepreneurs are well-positioned to bring about positive change. Gender-diversified businesses tend to perform better, making it a win-win for the startup ecosystem.

In June 2023, AWE Funds announced the first close of its maiden fund in India at $15 million, aiming for a total corpus of $45 million. Google also unveiled a list of 20 startups for its Startups Accelerator: Women Founders program, designed to empower women entrepreneurs using technology to solve complex problems.

Moreover, a rising class of women investors is emerging, serving as role models for the next generation. Communities like Womennovator, leap.club, and the Federation of Indian Women Entrepreneurs are playing pivotal roles in fostering entrepreneurship among women, developing leadership skills, and providing networking opportunities.

The Path Forward

While these initiatives are promising, the systemic biases against women in startups continue to exist, resulting in scant participation and a persistent imbalance in funding ratios. There is a pressing need for heightened gender neutrality and equitable evaluation processes to ensure fair funding across the investment ecosystem.

With investors sitting on more than $23 billion in dry powder, 2024 could bring new hopes for female founders if the stage is set for diversity and growth. The journey towards a more inclusive funding landscape is ongoing, but the collective efforts of investors, entrepreneurs, and support systems are crucial for paving the way forward.