Is the number of funded female-led MENA startups really rising at all?

Staff Writer

There is no shortage of headlines lauding the rise of the female entrepreneurs in the Middle East and the growing support from the public and private sectors to fund female entrepreneurs. 

But is the number and the total funding support for funded female-led startups truly growing?

An ArabNet report showed the percentage of female-led startups that were funded in 2016 rose to 26% compared to 14% a year ago—the most significant jump since ArabNet began tracking gender-specific fundraising data.

When you dig a bit deeper, you’ll find that female founders remain a minority in the Middle East and mostly raise early-stage funding. The total number of deals with at least one female co-founder was 43 in 2016, compared to 35 deals a year before.

And there is a region-specific reason for that: shortage of female investors.

“The trend of low female participation in tech startups industry is a global one, but there is one additional factor that explains the gender imbalance in MENA startup founders: the shortage of female investors and partners who make funding decisions,” says Azza Yehia, research and data director at ArabNet.

Most investors agree the so-called subconscious bias plays a role, working against female founders.

“Unconscious bias hasn’t been a topic discussed in the Middle East as much as in Silicon Valley, but it does exist,” says Heather Henyon, founder of Women’s Angel Investor Network (WAIN). 

WAIN, which invests exclusively in female entrepreneurs, made seven commitments since 2013 with an average ticket size of $61,000.

Among the non-female angel networks, VentureSouq invested in 14 companies since 2013, out of which six companies had a female founder or co-founder. 

Two out of six firms Dubai Angels Investors committed to had female founders or co-founders.

Certainly, there are other reasons for the slow pace of change and the growth of female entrepreneurship, which are not limited to the MENA region. This includes biased investors, the lack of women who choose the startup road, the shortage of early-stage funding that cripples both male and female entrepreneurs, and a dearth of female VCs.

A handful of early-stage investors active in the region say their numbers are reflective of the available pipeline.

“In every 1,000 deals we see, 35% of companies are female-led, so that’s representative of what’s available, and when we cut those 1,000 down to the 20 that actually get to pitch to our investors,” says Elissa Freiha, co-founder of WOMENA.

WOMENA is a regional angel group focusing on the education of female angel investors. It has, to date, invested in seven companies in two years of operation.

Two of these companies have female founders: one founder and one co-founder.

Among the non-female angel networks, VentureSouq invested in 14 companies since 2013, out of which six companies had a female founder or co-founder. 

Some of the challenges are not limited to female entrepreneurs.

Joy Ajlouny, co-founder at Fetchr, an on-demand delivery service, had raised multiple rounds in both the MENA region and Silicon Valley, mostly recently a $41 million in series B funding led by Menlo Park-based New Enterprise Associates. 

As someone who has raised funds both in the MENA region and the U.S., Ajlouny acknowledges the differences in fundraising when you compare the two regions.

“The investors in Silicon Valley when they put together a fund, they have the interest to meet as many entrepreneurs as possible,” she says. “Here the doors are not as open as they are in Silicon Valley: to get an appointment with someone who has a family fund, it’s not easy.”

Given this disparity and a funding gap, a new regional initiative was kicked off in Beirut earlier this year to support more female entrepreneurs.

Backed by Lebanese League for Women in Business and IM Capital, Lebanese Women Angel Fund launched in July.

“By tradition and culture, women shy away from looking for such investments, plus they are not courageous enough to commit and are afraid of failure,” says Asmahan Zein, co-founder of the Lebanese Women Angel Fund and president of Lebanese League for Women in Business.

The lack of female investors at more prominent funds is another reason we’re not seeing larger ticket sizes raised by female-led startups. The VC ecosystem in the MENA region is still predominantly a men’s club.

“Most of the investors in the region, both angels and VCs, are men: women aren’t on their networks and hence don’t have the same access that the guys do,” says Heather Henyon, who also serves as a board director at Dubai Angel Investors. 

“We need more women investors at the venture level – partners at VC firms.”