Bridging the Finance Gap for Women Entrepreneurs

28. Scotland, United Kingdom: Policy insights on crowdfunding

Anne Meikle
Women’s Enterprise Scotland

Carolyn Currie
Women’s Enterprise Scotland

Fergus Hallwood
Women’s Enterprise Scotland

Background

The landscape of women’s entrepreneurship in Scotland, United Kingdom is both multi-faceted and continuously developing. Women-led businesses contribute GBP 8.8 billion gross value added (GVA) to the Scottish economy each year, accounting for over 13% of all jobs in the private sector – over 231 000 (FSB, 2018[1]). Yet in terms of start-ups, the Total Early-stage Entrepreneurship Activity rate highlights that women are only 68% as likely as men to self-report that they are working on a new start-up or managing a young business (i.e. less than 42 months old). This is the largest gender gap and second lowest rate for women within the four UK nations (GEM, 2022[2]). A recently published report by the Scottish Government underscores the need to improve support for women throughout the entrepreneurial journey and to create a critical mass to aid scale-up growth (Stewart and Logan, 2023[3]). Majority women-owned businesses are 20% of the business base in Scotland (United Kingdom), evidencing a large and slightly increased gender gap in enterprise participation since 2014 (Women’s Enterprise Scotland and Scottish Government, 2014[4]).

A major obstacle facing would-be women entrepreneurs is the limited access to finance. In tackling this, the Scottish Government has undertaken some key initiatives. In 2017, the Scottish Framework and Action Plan for Women in Enterprise was adopted in tandem with Women’s Enterprise Scotland. Among other actions, this plan recommended the improvement of mentorship services, role modelling programmes, and increased financial support. More recently, the Pathways scheme was launched in 2023, pledging over GBP 1 million to businesses led by under-represented groups, including women. Additionally, several loan and grant schemes have been launched to help businesses grow alongside or around certain issues such as the COVID-19 pandemic or the transition to Net Zero. However, obstacles remain for women seeking to launch or direct their own business, with access to finance persisting as a major challenge.

Policy issue: Improving access to finance through crowdfunding

The COVID-19 pandemic exposed and exacerbated existing disparities and structural inequalities for women business owners. Scottish women-led companies made up just 13.3% of successful applications to two business pandemic relief grant funds, receiving only 10.6% of the total funding (Women’s Enterprise Scotland, 2021[5]). While those eligible for Self-Employed Income Support Scheme (SEISS) were 35% women and 65% men, only 23% of the total funding went to women applicants (Women’s Enterprise Scotland, 2021[5]). Added to this, the reduced risk appetite of banks to lend to small businesses after the banking crisis in 2008, and again post-pandemic, has seen further deterioration during the cost-of-business crisis (Tyler, 2023[6]). The withdrawal of European structural and investment funds, as a result of the United Kingdom leaving the European Union, has had consequences for community wealth building and economic development, as funding has been cut for infrastructure projects as well as a wide range of community based and business support projects (Scottish Government News, 2022[7]). Equally as impactful, the compounding effect of the COVID-19 pandemic and subsequent cost-of-living crisis has seriously hampered the path towards gender equity. As start-up funding becomes ever more constrained in Scotland (United Kingdom), new sources of capital for women are emerging, such as crowdfunding and angel investment, which may be beneficial in improving women’s business capitalisation and funding.

Crowdfunding may offer a mechanism to help improve access to finance for women entrepreneurs. Originally focused on the music and arts communities, crowdfunding has developed over the years to become a more mainstream funding mechanism. Recent data suggests that women have experienced notable success in funding campaigns, exceeding the gains made by male counterparts (PwC and The Crowdfunding Centre, 2017[8]). The main types of crowdfunding are rewards-based crowdfunding, loan-based crowdfunding, equity-based crowdfunding and donations-based crowdfunding. The growth in the reward-based crowdfunding market is partly driven by increasing numbers of entrepreneurs using this platform as a means of financing their projects. Through rewards-based crowdfunding, women entrepreneurs can offer their products and services as rewards to prospective purchasers. In this way, sales can be secured and payment taken upfront before having to pay for the cost of the goods and deliver the goods to the purchaser. The opportunity to effectively pre-fund the cost of sales enables women to sell more products and gain valuable profits. In addition, donation-based crowdfunding offers a route for women philanthropists to support the business creation projects of other women. Instead of purchasing products as rewards, a donation can be made to support the business project. By combining rewards-based crowdfunding and donation-based crowdfunding, women can access two new mechanisms to better fund their businesses. Equity crowdfunding is quite different from the other types of crowdfunding and can be more attractive to a particular kind of investor; as in return for their investment, investors receive an equity stake in the company. This type of crowdfunding, therefore, tends to attract larger sums of investment. Crowdfunding activity can help to boost the profile of new business projects in turn leading to greater awareness and access to more prospective purchasers and/or donators. Greater awareness of entrepreneurial activities can also assist with access to non-financial business benefits. A pioneering rewards- and donations-based crowdfunding platform built by Women’s Enterprise Scotland through the Women’s Business Centre online platform saw eight businesses taking part in rewards- and donations-based crowdfunding campaigns at the end of 2023, raising a total of GBP 28 500. Several of the businesses achieved local and national media coverage in print and on television. Following the coverage, wider offers of support were received including offers of additional funding and access to business premises.

Crowdfunding may also have a critical role to play in assisting more women entrepreneurs to gain funding from more traditional funding sources such as banks and equity investors. The data held by platforms on the achievements of each campaign offers a rich source of insight into product market fit for new innovations. Collating such data and making it available to follow-on lenders and investors provides a source of independent verification of sale achieved. In addition, the wider campaign activities can help assess the success of marketing activity undertaken and which channels have performed better than others. Data from these sources can assist with due diligence work and better evidencing underlying business value.

Conclusions

For decades women entrepreneurs have not received a commensurate share of business funding with equity investment in particular evidencing a significant disparity. The status quo was further exacerbated by sustained funding inequalities during the COVID-19 pandemic with women entrepreneurs now facing a cost-of-business crisis from a weakened and more vulnerable financial position. Access to capital is vital for business growth and sustainability and crowdfunding offers a new way for women entrepreneurs to effectively pre-fund the cost of their sales and grow the financial capital in their businesses. Governments could develop further regulations on crowdfunding to protect individuals, businesses and organisations while enabling simple access to this innovative and effective source of funding.1 Key areas for potential policy development include expanding financial education in the business advice sector to incorporate crowdfunding as a viable capital source, establishing informational courses on effective crowdfunding strategies for women entrepreneurs, along with promoting successful case study examples and offering financial incentives for their campaigns, and mandating gender-disaggregated data reporting for business funding allocations to track finance to women-led businesses.

References

[1] FSB (2018), Women in Enterprise: The Economic Case, Federation of Small Businesses, https://www.fsb.org.uk/resource-report/supporting-women-s-enterprise-in-the-uk.html (accessed on 2 October 2024).

[2] GEM (2022), Global Entrepreneurship Monitor. Scotland, Global Entrepreneurship Monitor, https://www.gemconsortium.org/report/global-entrepreneurship-monitor-scotland-report-20212022 (accessed on 2 October 2024).

[8] PwC and The Crowdfunding Centre (2017), Women outperform men in seed crowdfunding, https://www.pwc.com/gx/en/news-room/docs/women-outperform-men-in-seed-crowdfunding-according-to-analysis-by-pwc-and-the-crowdfunding-centre.pdf (accessed on 2 October 2024).

[7] Scottish Government News (2022), EU Replacement Funding, https://www.gov.scot/news/eu-replacement-funding-gbp-151-million-less-in-first-year/ (accessed on 2 October 2024).

[3] Stewart, A. and M. Logan (2023), Pathways: A New Approach for Women in Entrepreneurship, https://www.gov.scot/publications/pathways-new-approach-women-entrepreneurship/ (accessed on 2 October 2024).

[6] Tyler, R. (2023), “Cautious banks reject more loans for small firms”, The Times, https://www.thetimes.co.uk/article/cautious-banks-reject-more-loans-for-small-firms-r67g0bcwj (accessed on 2 October 2024).

[4] Women’s Enterprise Scotland and Scottish Government (2014), Women in Enterprise Framework and Action Plan, https://www.gov.scot/publications/scottish-framework-action-plan-women-enterprise/ (accessed on 2 October 2024).

[5] Women’s Enterprise Scotland (2021), Covid grant funding gender gap, https://www.wescotland.co.uk/single-post/covid-grant-funding-gender-gap (accessed on 2 October 2024).

Note

← 1.  In the United Kingdom, the Financial Conduct Authority (FCA) is an independent public body accountable to the Treasury which is responsible for the UK financial system and to Parliament. If the crowdfunding involves a regulated activity, the FCA is responsible for its regulation.