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What women entrepreneurs need: Investing in gender equity

By: Lindsay Camacho, Leonie Jarrett, Jedidah Ndubi, and Margaret Wanjiku
  • Blog
  • East Africa

Women entrepreneurs are driving innovation and designing solutions to the biggest issues of our time – the climate crisis, food security, maternal care, and more. But they still face myriad barriers, including systemic bias and exclusion from traditional investment structures, lack of investment readiness, and most fundamentally, restrictive gender norms. These challenges are exacerbated for women of color in developing regions such as sub-Saharan Africa (SSA). 

In East Africa, Acumen is focused on correcting systemic bias towards female and local founders who have been historically excluded from financial structures. As part of this commitment, we target 20% of new investments to women-owned businesses and 75% to local, African founders. But we have a ways to go. At the end of 2022, just 16% of our East African portfolio companies had female co-founders.

To further dive into this issue, in July, Acumen East Africa convened a group of funders, technical assistance providers, and gender champions in Kigali, Rwanda at our event during the 2023 Women Deliver conference. 

We spoke with Lindsay Camacho, Leonie Jarrett, Jedidah Ndubi, and Margaret Wanjiku, four key figures driving Acumen’s gender-lens investment work, about issues faced by women entrepreneurs in Africa and how Acumen is proposing bold solutions.

How do social norms and practices hinder women entrepreneurs in Africa?

MW: Women entrepreneurs in Africa face deeply ingrained cultural practices that limit women’s time and movement due to care work and family responsibilities. Moreover, unmitigated sexual violence and gender-based discrimination make it difficult for women to engage fully in business activities, and grow their firms. They also contribute to women’s unequal access to education, resources, and networks, meaning that women entrepreneurs start out on an uneven playing field. This fundamentally creates a lack of investment readiness amongst women entrepreneurs, perpetuated by a lack of capital.

Lack of access to finance is frequently described as one of the main challenges experienced by female entrepreneurs with early-stage social enterprises. What is the funding gap currently and how does it affect women’s ability to access capital?

JN: Women-led small and medium-sized enterprises face a funding gap of $1.4 to $1.7 trillion. This means that women are less likely to secure investment capital than men, and when they do, it is often in significantly lower amounts. In SSA, women’s access to financing is disproportionately low, with estimates indicating that only 16% to 20% can access long-term financing. For example, in the first half of 2023, women-only African founding teams raised just $1 out of every $50 in equity finance.

Explain the different types of capital available to early-stage entrepreneurs and why some, like grants, are sometimes not best suited to women entrepreneurs. 

LJ: Grants, equity, and debt are all critical funding instruments at different times in a business’ life cycle. However, in East Africa, there is an over-reliance on grant funding exacerbated by the significant availability of grants but dearth of impact-focused investment capital. As early-stage equity investors, we recognize the importance of grants and non-repayable financing throughout a social enterprise’s lifecycle. However, we see that many grants are small and restricted to new and novel activities, and so many entrepreneurs end up running isolated projects that don’t contribute to overall organizational sustainability, and that don’t build an evidence base that demonstrates a scalable model. Unfortunately, we’ve seen that women entrepreneurs are more susceptible to this unsustainable loop of repeat grant funding, since women find it harder to secure their first investment. 

As early-stage social enterprises grow, they need Patient Capital and concessional debt financing (loans with low interest rates) to build balance sheets and shift from a project orientation to a growth and value creation mindset. But at this stage these businesses are usually unable to secure a short-term loan at a reasonable rate. Their revenues don’t yet qualify them for other financing, and women especially are unable to meet the collateral requirements. 

Panelists at Acumen’s “Investing in Gender Equity” event.

What is investor readiness and how does it pose another challenge to women entrepreneurs?

JN: Many early-stage ventures have substantial gaps in their business models, preventing them from accessing investment capital. In 2022, Acumen East Africa sourced 40% of companies for their pipeline that were women-founded or owned, but could only invest in 20% due to various criteria for investment not being met. These businesses were not ready for investment because they were not yet generating revenue, did not have a clear understanding of their unique value proposition, operated on a small scale, sought small investment amounts, or operated in low-margin industries, which made it less likely that they would have a significant impact. While these challenges may not exclusively affect women-led businesses, they tend to exacerbate existing gender disparities in accessing investment and support. 

Now let’s focus on some of the solutions. How can we solve some of these challenges we’ve been talking about, from misaligned cultural practices to lack of access to finance to substandard investor readiness for women entrepreneurs? 

LC: While we recognize that challenging social norms is not a core focus of our work as investors, we believe that access to the right capital – when paired with mentorship, technical assistance, and patient partnership – can help level the playing field and address some of the systemic barriers faced by women entrepreneurs. These entrepreneurs need access to more patient and flexible investment instruments to help them scale their ventures.

Forgivable loans and zero- or low-interest loans offer early-stage ventures the chance to “prove” themselves by receiving and repaying small loans. For instance, Rabobank has supported startups by providing concessional loan financing. Several of Acumen’s portfolio companies benefited from Rabobank’s support, allowing them to validate innovations, develop new products, and invest in technology and infrastructure. As these companies repay their loans and establish financial prudence, they become more appealing prospects for additional financing, further fueling their growth and innovation. The Social Innovation Academy’s Purpose Pool in Uganda is another example, offering philanthropy-backed, small revenue-based loans to early-stage refugee entrepreneurs.

Ultimately, more impact investors must be willing to pilot and test these instruments and share case studies, and educate the donor community who may not be familiar with them.

What about mentorship and technical assistance?

MW: Yes, enhancing women’s leadership, agency, and confidence is crucial. Studies have shown that providing financing to women entrepreneurs without accompanying training leads to higher loan default rates.

JN: Recognizing the existing fragmented support for women entrepreneurs, Acumen East Africa is working to bridge the gap between early-stage companies and those with established market traction. We believe that hands-on financial and operational assistance can help these businesses address critical gaps in their models and enable them to access investments from impact investors and traditional capital providers for scaling and market expansion. With support from the Government of Canada, we are designing a pilot program for women entrepreneurs, offering investment readiness technical assistance to prepare women-led businesses for potential future investments. 

How does Acumen plan to support women entrepreneurs in the long term, and what is the role of knowledge development in this process?

LC: Long-term change, particularly when addressing deeply rooted gender disparities, takes time. Acumen aims to support women entrepreneurs by generating examples of evidence-based approaches. We are focused on piloting new approaches and sharing what we learn. With the right mix of inclusive capital and targeted support at the right time, investors and funders can be better allies to women entrepreneurs and accompany them on their journeys to scale.

Acumen’s gender-lens investing work in Africa is generously supported by the Government of Canada through Global Affairs Canada.