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April 28, 2022

Clean tech: Are females excluded from green economy?

PE and VC investment in climate tehnology is accelerating, but the same growth rates are not being experienced by female-led businesses. Capital Monitor looks at clean tech funding to find out more.

By Virginia Furness

Fundraising frustration: It is harder for female entrepreneurs to attract capital in clean tech than in the market generally, says research by BCG. (Photo by Ranta Images via iStock)
  • Investment in early-stage clean technologies is essential to meeting net zero.
  • Clean tech is big business, with capital deployed to climate tech growing at five times the venture capital overall growth rate.
  • Female entrepreneurs still get only a fraction of the funding their male counterparts receive – and research shows this is exaggerated in the clean tech sector.

With scientists warning that net zero by 2050 can only be reached with the help of new technology not yet commercially scalable, investment in climate-related tech is becoming big business. A record $755bn was invested in energy-transition technologies in 2021 – a 27% increase on the year before, according to energy consultant BloombergNEF.

However, male-led companies continue to receive the lion’s share of investment, raising concerns the green transition is having little or no effect on the gender divide.

Data from US provider Pitchbook shows that private equity (PE) investment globally into clean tech businesses founded by men was $10bn in 2021, dwarfing the $26.1m raised by businesses with female founders in the same year. Female-founded companies are defined as having at least one female founder. However, there doesn’t appear to be public data capturing the volume of capital turned down by gender.

Pitchbook defines clean tech as companies developing technologies that reduce the environmental impact of human activities or reduce the amount of natural resources consumed.

An October report by consulting firm BCG says female entrepreneurs find it harder to attract funding in the clean tech space than in the market more generally. While 20% of non-climate-related venture capital (VC) funding went to start-ups with at least one female founder in 2019, just 15% of climate-related VC funding did, BCG says.

BCG says women risk being excluded from the green energy transition and that access to funding remains a key hurdle for women in the sector. It calls for action to expand access to capital for women entrepreneurs in the green economy.

A look at both data and anecdotal evidence points to a more complicated picture. Some VC and angel investors told Capital Monitor the systemic funding imbalance and bias against female entrepreneurs is no worse in the green economy than elsewhere.  

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In the broader global PE market all female-founded businesses received just 5% of the PE funding their male-led counterparts received in 2021.

In the same year, male-founded businesses raised $887.6bn in PE funding, while female-founded businesses raised $41.5bn. While the value of investment in all female-founded global PE deals has increased in the past five years, there is little change in the relative proportion versus male funding, with it remaining at 4-5% between 2017 and 2022.

The story in the VC space is similar. While the capital deployed to climate tech grew at five times the VC overall growth rate over the past seven years, investment in female-founded businesses has failed to keep pace, according to PwC.

US-based VC funds invested $30.8bn in climate tech through 783 deals in the first three quarters of 2021, a jump of more than $10bn compared with all of 2020, according to Pitchbook. But VC investment in female-founded clean tech companies stood at just $1.2bn for that period via 102 deals.

Pitchbook shows female-founded companies from all sectors received $40.4bn in 2021, less than a fifth (17.5% from 14.6% in 2015) of the VC funding of male-led businesses, though the number of deals financed has increased steadily since 2010 to make up 25% of the market in 2021 (see chart below).

Are climate investors biased?

While acknowledging women will play a key role in the climate transition, practitioners say the challenges faced by female entrepreneurs are no worse in the green economy than more broadly.

And without comprehensive data to show the volume of capital solicited and turned down by both genders, it is difficult to say definitively if women are unfairly penalised by VC or PE investors because of their gender, despite anecdotal evidence to the contrary.

For example, pharma, biotech and financial technology sectors have seen sharp rises in early-stage investing in all-female founders.

Cam Ross runs the Green Angel Syndicate, the UK's largest network of specialist investors focused on climate change. Ross says he sees no shortage of female entrepreneurs and early-stage businesses seeking funding. The group has a membership of 350 high net worth individuals who are specifically targeting the sector.

Female founders run eight of the Green Angel Syndicate’s portfolio companies, making up around 25% of the 30 companies in total, but he says the pipeline contains 35-40% of female-led companies.

“We explicitly look out for not only female founders but those with diverse backgrounds because we believe it is important to redress the under-represented nature of those groups,” he says.

Education, education, education

Beverley Gower-Jones runs and manages the UK’s £101m Clean Growth Fund. It invests VC in the UK’s most promising early-stage, clean growth ventures, targeting companies that are pioneering carbon emission reductions in the areas of power and energy, buildings, industry, transport and waste.

She says the education system is the root cause of the problem.

“I don’t think there are people out there saying we aren’t going to fund this because it is founded by a woman,” says Gower-Jones. “It goes back to education. Most technologies are engineering-driven. The percentage of female founders is just considerably smaller. It is more the end result of them not coming into [science, technology, engineering and mathematics] in the first place.”

Sarah Casey, who runs the Climate Council and has convened a working group called Empowering Growth, Women’s Access to Energy Finance, says one of the reasons access to funding is more difficult for woman is because investment committees tend to be populated with males with from an oil and gas background.

“When you get a full-male investment panel the questions that women get asked [to focus] more on risk than [the] opportunity,” she says. “There’s an unconscious bias.”

Establishing whether unconscious bias influences investment decisions is hard to prove. What is clear is that clean tech needs a massive injection of funding if net zero is to be met, but it is currently lagging behind other sectors such as pharma and healthcare.

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