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Women-led startups fear falling behind amid tech downturn

TORONTO — Members of Canada's tech community say they are worried the sector's recent downturn will weigh even heavier on women founders, who have long trailed their male counterparts when fundraising.
Caitlin MacGregor, the founder of Waterloo, Ont. recruitment technology company Plum, has been shopping around a Series A since September, after previously raising $11 million through a seed round and an extension. THE CANADIAN PRESS/HO-Michael Henry *MANDATORY CREDIT*

TORONTO — Members of Canada's tech community say they are worried the sector's recent downturn will weigh even heavier on women founders, who have long trailed their male counterparts when fundraising.

Their fears come as the global tech sector is being rankled by reduced spending as consumers shift back to pre-pandemic habits. The sector is also grappling with widespread layoffs, falling valuations, and as investor exuberance wanes, founders are struggling to drum up cash. 

"The way one investor phrased it is, 'It's a bloodbath out there,' but ... the way I would say it is that the fundraising environment went to hell in a handbasket," says Caitlin MacGregor, the founder of Waterloo, Ont. recruitment technology company Plum. 

She's been shopping around a pitch for more funding since September, after previously raising $11 million. While she's confident she'll come up with the cash she needs, she and others feel many women will struggle even more than usual to achieve the same feat.

"Women get a smaller percentage of available capital, and then when that capital gets even smaller, the portion that goes to women gets even smaller," says MacGregor.

"That means that the percentage of companies that are going to fail because they didn't get funding goes up."

Waterloo, Ont. data firm Briefed.In found Canadian tech companies received $14 billion across 701 deals in 2021, when the market was still soaring because businesses projected their huge pandemic growth would continue. By 2022, investment activity fell to $9.7 billion across 417 deals. 

This year has so far generated $176.9 million in investments across eight deals, but many feel 2023 will end even lower than last — and if past trends continue, women will garner only a meagre share of the available cash. 

Women-owned businesses received just 2.3 per cent of venture capital (VC) funding available worldwide in 2020, down from 2.8 per cent in 2019, data firm Crunchbase calculated.

"The market situation of today is not going to help," says Rhiannon Davies, general partner at Sandpiper Ventures, a Halifax-based seed stage venture capital fund investing solely in women-led, Canadian companies.

Early in the pandemic, she noticed a rush of capital, competitive deals and huge valuations resulting in companies going public and investors achieving lofty exits.

The frenzied market generated an increase in investments in women and other under-represented founders, but Davies said it was proportionate to the funding wave the entire sector was seeing.

"The ratios aren't changing quickly enough. We're not moving the dial," she said. 

"There's still a tendency toward the token investment in women's technology as opposed to a real shift to say this is the direction that we need to go."

Many attribute those token investments to funders putting money behind people they already know or companies that have followed the same path as others they've successfully invested in. Others feel prominent schools, employers or incubators that produced hit companies before and feature on a founder's resume can factor into funding decisions too.

Davies calls it investors clinging to the "things they know" and "repeating the same patterns." 

MacGregor calls it "implicit bias."

"They're looking at has this person worked at a tech company or in the industry that they're building a company in, have they raised funds before, have they successfully exited a business before?" she said.

"When women are starting, a lot of the time they don't necessarily fit the pattern right out of the gate."

They're also less likely to be pitching investors who resemble themselves. Women made up only 19.4 per cent of Canadian VC partners in 2019, diversity data firm Diversio said, and 27 per cent of Canadian angel investors in 2021, said the National Angel Capital Organization.

Women founders are two times more likely to invest in a women-led startup, research from the Silicon Valley-based Kauffman Fellows Program showed.

To address the lack of funding, several VC funds solely target women-led companies, but Davies said they're inundated with hundreds of requests and can often only back a dozen.

"There's phenomenal demand, but it's a massive amount of work for an investor to really effectively evaluate and not let any founder feel left out."

Toronto entrepreneur Liza Akhvledziani had little success in courting funds targeting women founders when she started rent payment platform Chexy in late 2021.

"Maybe it's because they're overloaded with demand from other female founders and there's just less of them," she hypothesized. 

She eventually raised funding from early-stage investor Antler, but before its support, finding someone to hand over cash was a "grind."

Akhvledziani believes her difficulty didn't stem from her being a women, but from the recent market downturn exacerbating Canada's overall lack of funding and resistance to back early-stage companies.

"There's going to be way less people willing to write checks right now," Akhvledziani said.

"It's not like they need to be spending this money ... when they're losing money in the public markets every day."

While she is envious of the higher rates of capital the U.S. enjoys and disappointed by the troubles many founders face to get their ideas to fruition, she still sees success for Canadian startups on the horizon.

"Great business models and great teams will always get funded," Akhvledziani said.

"If we can raise and execute well in this macroeconomic climate, that means when the tide change, then it's going to be even better for us and we're going to be killing it."

This report by The Canadian Press was first published Jan. 27, 2023.

Tara Deschamps, The Canadian Press