Pathways: A new approach for women in entrepreneurship

Executive Summary

In March 2022, Ana Stewart was commissioned by Kate Forbes, Cabinet Secretary for Finance and the Economy, to chair an independent review into female entrepreneurship in Scotland. This report is the culmination of that review. Its recommendations are concerned with dramatically raising the participation level of women in the entrepreneurial economy, thereby increasing Scotland's entrepreneurial capacity and improving its economic performance.

The impetus for the review lies in the fact that, despite more than half of Scotland's population being female, currently one in five of Scotland's entrepreneurs are women, while start-ups founded by women in Scotland receive only 2% of overall investment capital^[1]. This is despite copious evidence that the entrepreneurial and related capabilities of women are equal to those of men^[2]. This state of affairs represents both an enormous loss of talent from Scotland's start-up economy and a denial of opportunity on, literally, an industrial scale. At the same time, it also presents a compelling case for Scotland to leverage this untapped pool of talent to drive and grow the entrepreneurial economy.

• 1 in 5 of Scotland's entrepreneurs are women.
• 2% of institutional investment goes to women-led companies in Scotland.

In conducting this review, we are conscious that this participation rate has remained more or less constant over many decades. Despite various prior, high-calibre reports on the topic already having been produced and the many positive initiatives already in place, structural progress has been stubbornly slow.

This reality drove the method used to develop our recommendations in the present review. It is a novel and an ambitious approach, which extends its scope beyond the proximate causes of under-participation to also include their underlying root causes, in an effort to fundamentally transform female participation rates in entrepreneurship.

Such an approach enables a portfolio of interventions to be developed which, in combination, endeavour to address the full chain of cause-and-effect leading to today's current under-participation of women in Scotland's entrepreneurial ecosystem. Without such an approach, attempted solutions to under-participation are frequently undermined by deeper root-causes, which result in proximate causes being continuously re-established, such solutions consequently serving as a 'band-aid' rather than a cure.

The report was commissioned to consider the under-participation of women in entrepreneurship, but the recommendations have wider applicability. This is because many of the root-cause issues affecting entrepreneurial under-participation as regards gender also affect other under-represented groups. For example, from the research conducted for this report, it was clear that some of the factors that undermine the participation of women in entrepreneurship also apply to demographics such as recent migrant groups, rural entrepreneurs and those located within disadvantaged urban areas, and that they are further amplified at their intersection. Accordingly, it is likely that, in some instances, the recommendations made in this report will also have utility in raising participation rates within these other demographics. However, it is beyond the scope of this report to fully explore all under-participating demographics, and we recommend that follow-on work is performed in these areas.

For this review, we conducted over 200 direct interviews with organisations and individuals. To further inform and stimulate our thinking, we surveyed wider entrepreneurial sentiment through roundtable events, focus-groups and online surveys, and we cross-referenced our findings with analogous profiles from comparable economies.

In common with many other economies, there is a long-established absence of gender-disaggregated data in Scotland's entrepreneurial domain which greatly obscures the measurability of applied improvement initiatives. We addressed this problem by working with the data specialist mnAI^[3] and the University of Strathclyde to perform a gender-disaggregated analysis of Scotland's current start-up ecosystem, in a format suitable for on-going benchmarking.

Using this blended research approach, we have identified five major proximate causes of under-participation in entrepreneurialism. These causes are listed below.

For each of the causes below, we have then analysed the full chain of cause-and-effect associated with these areas. This analysis, and the recommendations resulting from them, constitute the majority of the report.

Relative to men, women are often more logistically constrained, making participation in entrepreneurship difficult.

Society commonly assigns the primary-carer role and the home-manager role to women, and then doesn't provide sufficient balancing support. This state of affairs isn't compatible with the intensive demands of an entrepreneurial career-path.

Women frequently have a sense of "not belonging" in entrepreneurship, which affects their confidence and self-belief.

The sparsity of women founders in entrepreneurship establishes a vicious circle leading others to conclude that entrepreneurship isn't a natural environment for them, which then further drives this sparsity.

Formally-defined pathways into entrepreneurship are unclear, while informal pathways and networks underserve women.

Developing an understanding of how to become involved in entrepreneurship and how to successfully move through its various stages largely relies on informal networks which are heavily orientated towards men. Formal support is correspondingly less well organized, disproportionately affecting women and other under represented groups.

General education and normalisation of entrepreneurship as a valid career path is largely not present in the education system.

This point naturally affects all demographics, but its impact is greater for women in the presence of the other proximate causes listed here.

Women receive far less investment than men at all stages of the entrepreneurial journey from venture capital firms and related sources.

For example, of the companies that received external investment in 2022, 12% were female-led and 73% were male-led. Overall, there was a 6:1 ratio of male-founded to female-founded companies that received investment. Over the past five years only 2% of institutional investment went to female-led businesses^[4].

The review conducts a detailed analysis of each of these areas. It then presents a blended portfolio of interventions, combining those that provide near-term improvements in participation levels with others designed to permanently improve long-term participation rates in the entrepreneurial ecosystem.

It is important that the full portfolio of interventions identified in this report be implemented in its entirety. This is because the interventions identified are mutually reinforcing. Implementing one or two isolated recommendations yields incremental outcomes only, whereas what is actually required – and what is achievable - is a transformation in participation levels. Indeed, we assert that the recommendations developed for this review have the potential to make Scotland a leading nation in increasing entrepreneurial participation. And they also have the potential to amplify the effectiveness of initiatives already in place.

In all, we present 31 specific and directly actionable recommendations. The major recommendations can be categorised and summarised as follows:

Bringing start-up incubation, education and support to where primary carers are.

In current society, the primary carer role usually falls to women^[5]. The significant additional burden on primary carers means that, for many, they are time-poor and location-constrained. The home, workplace, school, nursery, shopping centre, surgery, etc., need to be close enough to each other to be accessible within the time constraints in which primary carers typically operate. Therefore, all are generally located at the same radial distance from urban centres, for example. To attempt to deviate much from this radial journey is to considerably exacerbate the time constraint, reducing available working time and adding to the mental burden through increased time-driven anxiety. These factors act to reduce the accessibility of start-up incubation and entrepreneurial education services for primary carers.

To address the geographical and time constraints acting upon entrepreneurs in primary carer and home manager roles, we recommend that the Pre-Scaler network concept as defined in Scotland's National Strategy for Economic Transformation^[6] be extended as follows: firstly, Pre-Scalers should be renamed to Pre-Start centres, which more accurately reflects the stage of businesses accessing their services. Secondly, the Pre-starts network should also operate as a mobile Pop-up Pre-starts (or PUPS) model, travelling to the places near to where people in primary carer roles are most often located.

Such a model maximises target audience reach, cost-effectiveness and the use of scarce mentoring resources. It significantly increases access for women and other under-represented groups. Although we are analysing this focal area from the perspective of women (because women are most often subject to its effects), our proposals naturally should provide the same potential for everyone engaged in primary carer and home manager roles.

Pop-up locations must be where primary carers already are, and could, for example, utilise empty retail spaces, and similar. The current ecosystem already boasts good examples of this approach, though in an isolated and siloed fashion.

Pop-ups and Pre-Start centres provide a start-up incubation space, business and related services, access to founder education resources, business mentors, technical expertise, including digital marketing and web skills and a peer-learning and community environment. They also provide access to resources such as a 3D printing capability.

A Pop-Up would remain at a given location for anything from a few days to a month, depending on demand and other factors, and it would return to that location frequently and predictably.

The model also has applicability well beyond the needs of primary carers. It makes support available to all groups with time and/or location constraints. And the mobility and coverage offered by the Pop-up model would contribute to supporting entrepreneurial development in rural areas as well as in disadvantaged urban and suburban areas.

To further address the time constraints and the additional financial burden acting upon entrepreneurs in primary carer and home manager roles, the Pre-starts network (including PUPS) should provide up to one full year of financial assistance towards extended childcare costs (i.e., from 3:00pm-6:00pm, weekdays) for full members of the network. Mechanisms to manage costs predictably are presented in the body of this report.

The overall effect of the above recommendations is to establish within Scotland an integrated nationwide entrepreneurial incubation, education and support platform, and one that is properly adapted to the needs of under-represented demographics. To ensure that we stay true to these goals during implementation and beyond, we recommend that the design and development of this platform includes regular input and consultation with a panel of founders from under-represented demographics.

Supporting under-represented founders through the Concept and Journey Funds.

Scotland should create two new types of business support grant and tightly integrate them with the enhanced incubation services described above.

A critical drop off in the number of female entrepreneurs occurs from the nascent concept stage through the pre-scaling and scaling start-up stages. This is evidenced in the extremely low number of women-led start-ups receiving funding from angel syndicates and other finance sources. Even when turning to so-called friends-and-family funding, only 14% of the businesses receiving this funding are female-led compared with 65% male-led^[7]. This situation is exacerbated by existing background factors such as the current phenomenon of angel capital migrating from earlier to relatively later stage investments, and the on-going lack of availability of traditional debt funding facilities to early stage, high-risk start-ups.

The Concept Fund is a micro-funding scheme available to participants within the Pre-starts network, including PUPS (i.e. the pop-up variant). It is intended to encourage and support very early-stage founders in developing and testing nascent business ideas and concepts. The Concept Fund would provide small grants of up to £1000 for this purpose to members of the Pre-Starts network, with minimum associated bureaucracy. The Fund would be managed by the central operator of the Pre-starts network. Founders could make multiple applications to the fund during the course of developing and testing a concept.

The proposed Journey Fund is designed to support under-represented founders whose business ideas are more developed. Some of these founders may have 'graduated' from the Concept Fund stage. The Journey Fund would make grants to qualifying founders in these under-represented demographics of up to £50,000. The intention is to provide a greater runway for product concept development and business growth readiness before requiring access to private funding^[8]. We expect that this fund would be operated by Scotland's enterprise agencies in partnership with the private investment sector^[9]. and would act as a springboard for promising early-stage start-ups as their business moves into the more traditional investment ecosystem.

These two funds, working in tandem, will increase female entrepreneurial participation. This, in turn, will increase the pipeline of founders successfully scaling their businesses and, consequently, will accelerate their participation rates across all later development stages.

Encouraging better representation during "selection events" within the entrepreneurial journey

One of the challenges faced by female founders occurs when facing "selection events" on their entrepreneurial journey. For example, selection for investment, or for entry into an accelerator programme, incubator, etc. There is a well-established human tendency to bias in favour of selecting those people who are most like us. Investment organisations and selection panels, reflecting wider industrial demographics, tend to be heavily male-dominated, (and strongly skewed towards the country's majority ethnicity^[10]). Therefore, the following recommendations use government-funding participation to encourage better representation within both the selected and the selectors, at these critical points.

Government and enterprise agency funding to programmes operated by Ecosystem Builders^[11], such as accelerator and incubation programmes, founder development programmes, scale-up programmes, business networks etc., should become formally contingent on both the selected participants and selection panels themselves including minimum levels of female participation.

Funding to programmes operated by Ecosystem Builders should also be formally contingent on the organisation having in place robust processes for providing detailed, transparent feedback to founders rejected from participation as a result of a selection process.

The Scottish Government directly, or through its various agencies, frequently invests alongside private investment organisations, such as venture capital (VC) firms and investment syndicates. We recommend that co-investment formally becomes contingent on participating VCs having at least a minimum threshold level of women in senior-investment roles, while allowing for an adaptation period. The same consideration should apply to fund managers where the Scottish Government invests as a limited partner. These thresholds, which are subject to a grace period and other terms, are discussed in more detail in the body of this report.

Where the Scottish National Investment Bank acts as a Limited Partner to "cornerstone" a fund, such participation should be contingent on the fund manager operating to the same requirement.

Co-investment models operated by Scotland's enterprise agencies should routinely invest a greater percentage amount in start-ups with at least one female founder. We discuss possible mechanisms for this approach in the body of the report.

Taken together, these recommendations, although potentially controversial, are intended to finally impel progress towards an investment environment more orientated towards investing in diverse demographics, by encouraging diversity within the selection mechanisms themselves.

Integrating entrepreneurial education within Scotland's education system

Given that entrepreneurialism is a critically important discipline in the development of the nation's economy, it is imperative that we normalise the activity within society and better equip our entrepreneurs for success. This is especially important for those in under-represented groups who are otherwise somewhat excluded from the informal mechanisms that support and encourage entrepreneurship. But, of course, improvements in this area would significantly benefit all demographics.

It's important to the success of initiatives in this area that more emphasis is generally placed on experiential learning achievements rather than simply grade-attainment, with greater credit accorded to extra-curricular and vocational activities than is currently the case.

Accordingly, Scotland should integrate programmes that expose young people to entrepreneurial experiences and techniques into its school and further education system. Young Enterprise Scotland^[12] (YES) is already active in some of Scotland's schools, providing pupils with exposure to entrepreneurial ideas through various programmes. Scotland should build on this foundation, expanding programmes such as these to all secondary schools in Scotland.

By Secondary 3, optional project-based activities, such as experiential entrepreneurship programmes are squeezed by the pressure for pupils to acquire formal qualifications such as National 5 and Scottish Higher awards.

Therefore, we also recommend that the syllabuses of most subjects are adjusted to place greater emphasis on entrepreneurial technique than is currently the case and that this is manifest through experiential, project-based work. These changes should then be reflected in the attainment qualifications of school leavers and subsequently recognised by employers and further education organisations. For example, this change programme could start with Business Studies initially, for learning and feedback purposes, then proceed through science and engineering subjects, etc.

Further developing this experiential approach, a Scottish Start-up Summer School should be instigated, providing the opportunity for senior school students to gain exposure to the start-up experience. Each participating pupil start-up team would receive a small bursary to support their idea, with the best start-up ideas, and/or execution of those ideas, being publicly recognised at the end of the programme.

We emphasise the need for the Summer School to be genuinely inclusive, and available to all pupils, regardless of race, gender or family financial situation. One consequence of this goal is that consideration must be given to ensuring that support is provided such that pupils from disadvantaged backgrounds are able, in practice, to participate.

The Entrepreneurial Campus definition, first proposed in the Scottish Technology Ecosystem Review^[13] and developed further in Scotland's National Strategy for Economic Transformation^[14] should be fully implemented without delay. Amongst other goals, this ensures that students across a wide variety of disciplines are exposed to entrepreneurialism and have an opportunity to develop an entrepreneurial skillset.

Establishing Scotland as a leading nation in Femtech

Femtech is a term that refers to diagnostic tools, products, services, wearables and software that use technology to address women's health issues. Femtech companies also provide products that encompass general health conditions that affect more women than men or affect them differently than they affect men, such as osteoporosis and heart disease.

We recommend that Scotland acts strategically to establish the country as a global centre for Femtech start-ups. Femtech start-ups already include both female and male founders, with a skew towards the former. The fund would support start-ups with high growth potential. Therefore, such an approach, if successful, would not only enable Scotland to exploit a market with vast potential - an estimated $50bn globally^[15] - it would also help to normalise investment in female founders. Moreover, this focal area continues Scotland's proud heritage as a leader in life sciences and healthcare innovation. With Femtech, this leadership takes the form of recognising that the vast majority of existing medical research and development activity significantly under-focuses on women's health^[16].

Accordingly, the government should leverage ecosystem assets under its influence in a coordinated fashion to encourage Femtech start-ups to locate in the country, and to encourage investment in them.

For example, SNIB and Scotland's enterprise agencies should work together to cornerstone a Femtech fund, the Tech Scaler network should establish a Femtech specialisation within the network, and the Scottish Technology Ecosystem Fund should allocate a portion of its budget to supporting Femtech events.

Addressing the underlying sexism at the heart of under-participation

At the root of under-participation in entrepreneurship and many other fields is a continuous process of role stereotyping within our society. Our society has a degree of sexism embedded within it, and these prejudices are transferred from generation to generation. They manifest in the ecosystem as pay gaps^[17], digital gaps^[18], data gaps^[19], chore gaps^[20] and authority gaps^[21]. These biases influence attitudes towards suitability for entrepreneurship amongst stakeholders within the entrepreneurial ecosystem. Where an ecosystem is populated predominantly by one demographic it follows that bias will exist both unconsciously and consciously. Scotland needs to face this reality more actively, and more intensively address it.

For example, too often we are guilty of lazy sexism or lazy racism, where we witness conscious or unconscious sexism or racism but fail to "call it out", relying on members of the affected demographic to do so instead. Or we default to all-male (often from a specific background) or all-white participants during selection processes because it just feels easier and quicker than seeking out greater diversity^[22].

We must move away from a position of assuming that under-participation is the fault of the under-represented, towards the reality that under-participation is the fault of society. We should also embrace the benefits of parity and meritocracy, which, for example are illustrated in diverse executive leadership teams consistently outperforming their less diverse peers^[23].

All university and college courses should include mandatory, credit-bearing diversity and equality education as part of the first-year syllabus. This shouldn't be the tick-box type, but, rather, should be tailored appropriately to illuminate each applicable subject's under-participation origins and on-going exclusionary factors, in addition to more general diversity and equality education^[24]. It should include peer-to-peer discussion in addition to instructor-led teaching.

Diversity and equality education should also be included in foundational courses taught at secondary school level, in a similar fashion.

All organisations receiving financial support from the government for contributing services to the entrepreneurial ecosystem should demonstrate that a programme is in place to provide all staff with mandatory diversity and equality training. Examples include incubators, accelerators, conferences, scale-up programmes.

Attempting to change the role stereotypes associated with women is a useless endeavour if we don't, in parallel, change those stereotypes that attach to men. Prospective female entrepreneurs will make little progress if their male partners must meanwhile adhere to the primary-breadwinner stereotype inside their workplaces, for fear of otherwise being penalised in their careers.

In this respect, it is therefore imperative that employers also adjust their attitudes. Although the right to shared parental leave was introduced in the UK several years ago, the vast majority of men still take only a fraction of their entitlement^[25]. Men are often regarded as "less committed to the business" if they take on a greater proportion of the carer role or if they take more than a couple of weeks of parental leave. This perpetuates both the male and female stereotypes.

We propose that a Fair Society Champion accreditation is introduced in Scotland, awarded to those employers that actively encourage a fairer society^[26]. For example, where an employer actively encourages men to take up their full parental leave, actively encourages men as well as women to take on carer responsibilities, provides flexibility with regards to working hours pattern and location, regularly educates employees with regard to the home manager and primary carer burden, instigates processes and training to reduce the likelihood that carers, including men, are penalised or regarded as "not committed".

To encourage uptake of this accreditation, suppliers to government would be required to hold this accreditation or be working towards doing so in a defined time-period, to continue working on government-awarded contracts and to receive grant support. This is consistent with the approach taken as regards the other principles of the Fair Work Framework.

We can think of sexism as a spectrum, along which various degrees of severity are located, from relatively mild to more extreme. The presence of any one type of sexism acts to reinforce and legitimise the others. To meaningfully reduce sexism, we must therefore strategically act upon all three types, and especially upon extreme sexism, or misogyny. For example, women are 27 times more likely than men to be harassed online, a third of such content being threats of violence^[27]. It seems obvious that a society that tolerates such aggressive, hate-filled posts on social media directed at women, simply because they are women, will tolerate less-extreme forms of the practice too.

There is currently no existing law in Scotland directed against misogyny. However, the Misogyny and Criminal Justice Working Group published the excellent report Misogyny: a human rights issue in March 2022^[28]. At the time of writing, these recommendations have encouragingly been accepted in principle by the Scottish Government, but not yet implemented. A timetable for completion of the detailed review of these recommendations, and their implementation, should be published by the Scottish Government.

Clarifying Access Pathways into Entrepreneurship

Existing pathways into and within entrepreneurship largely operate on an informal, network-based support model, with largely male-dominated informal networks. It can be difficult for under-represented groups to access these networks. Because the entrepreneurial ecosystem relies on these informal networks, alternative, formalised access pathways for women are under-developed, under-coordinated and under-scaled.

The early-stage start-up space is a cluttered environment, consisting of literally hundreds of organisations, including support groups, government agencies, accelerator hubs, mentoring groups, training programmes, incubators, members associations, chambers of commerce, etc.

The combination of their sheer number, the informality of their operating models, their geographical location and the degree of overlap between them is confusing and often intimidating for entrepreneurs, who report finding it difficult to parse these options or to navigate the entrepreneurial pathways available to them.

Therefore, a centralised resource should be created, with clearly defined pathways for entrepreneurs at various stages of their individual journeys, in each case making clear all of the relevant follow-on support and mentoring options available to them. Of course, the value of such a resource would not be limited only to women – all participating demographics would benefit. However, given that the present situation is particularly unsuited to women, this demographic should be prioritised in the development of the resource. We'll refer to this resource with the working title of Entrepreneurial Pathfinder.

We envision the Entrepreneurial Pathfinder being delivered as a digital platform that can properly locate entrepreneurs at the right point within the support map, based on information supplied by the user. In essence, each entrepreneur is presented with their own journey based on their current circumstances, connecting the dots and creating a "golden-thread" through the potential support options available to them, whether it be nascent, start-up or scale-up stage.

Entrepreneurial Pathfinder must contain all credible support resources, both public and privately owned. To ensure that this is the case, it must be developed and maintained by an impartial entity, with digital expertise at its core. Such an organisation could, for example, be selected through a tender process, with impartiality a demonstrable condition of contract^[29]. Otherwise, the tendency to bias towards an organisation's own offerings and to deprecate others will, over time, be too great.

The responsible organisation for Entrepreneurial Pathfinder must actively maintain the currency and completeness of entrepreneurial support information within the service from the nascent start-up stage to high growth potential stage. It will also deliver a light touch governance framework within which resource suppliers operate. This solution would not only provide customised, relevant guidance to individual founders, it should also eventually form part of a wider national start-up ecosystem digital platform. Many countries already operate such a platform, bi-directionally connecting all start-ups in the country with the investment organisations and grant bodies etc^[30].

We also recommend that public funding for entrepreneurial support organisations should be contingent on active engagement with the Entrepreneurial Pathfinder operating team, ensuring that information remains current.

Establishing a comprehensive database for tracking progress towards full representation in entrepreneurship

The measurement and data sets employed in Scotland's entrepreneurial ecosystem are neither accurate enough nor sophisticated enough to properly inform entrepreneurial participation rates and to support improvement strategies. With this in mind we recommend that a gender- and ethnicity-disaggregated common database be made accessible to all stakeholders within the entrepreneurial ecosystem. The database should combine both public and private sector entrepreneurship/start-up statistics and be capable of disaggregating data, at least by gender and ethnicity dimensions.

The government should make it compulsory that any applicable entrepreneurial organisations receiving financial assistance and those in co-participation arrangements involving public money should make their relevant data available to this platform in an anonymised fashion. The government should publish an annual analysis of entrepreneurship participation trends, disaggregated by gender and ethnicity dimensions. This process should be integrated into the government's Wellbeing Economy Monitor reporting cycle

The remainder of this report is structured as follows. We recommend reading the report in the order presented, in order to fully understand the rationale of the report's recommendations.

Chapter 2 explains the approach we have taken to diagnosing the causes of under-participation, while Chapter 3 summarises the proximate causes of under-participation resulting from that analysis. Chapters 4-9 then expand the cause-and-effect chains for each of these proximate causes and discuss solutions for them. Chapter 10 distils these proposed solutions into a concrete set of directly implementable recommendations.

Appendices

A summary of our research approach and data is provided in Appendix A while Appendix B presents the full map of cause-and-effect relationships discussed in the report, for reference. A glossary of terms used in this document is provided in Appendix C. Our fellow contributors to the creation of this report are listed in Appendix D. Appendix E provides an extract from the Entrepreneurial Voice survey conducted as part of the research work supporting the report. Finally, a list of all references is provided in Appendix F.