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Women Founders Achieve More, and Investors Miss Out

By Richard Hartung

While only about six percent of startups in the United States have a female founder, and only about another 12% have a woman as a co-founder, according to PitchBook, startups founded by women outperform the market in terms of exit value increases and the time it takes to exit. Because businesses founded by women ultimately deliver more than twice as much revenue per dollar invested than those founded by men, consulting firm BCG observed, women-owned companies make better investments for financial backers. Reinforcing the results on a more anecdotal basis, a study by venture capital (VC) firm First Round, of 300 companies it invested in over the past ten years, showed that investments in companies with a female founder performed 63% better than investments with all-male founding teams.



Despite the far better performance of startups led by women, investors are missing out. Indeed, only 2.3% of funding from VCs in the US go to startups led by women. More broadly, BCG found that investments in companies founded or co-founded by women averaged US$935,000, which is less than half the average of US$2.1 million invested in companies founded by men.

In other countries as well, women face similar barriers. In India, for example, a 2020 report by Initiative for What Works to Advance Women and Girls in the Economy said that only seven percent of entrepreneurs are women. In Australia, according to Startup Daily, just 22% of startups are all-women-led, female founders face significant challenges in getting access to funds and female founders receive far less investment than male founders. And here in Southeast Asia, DealStreetAsia found that just 17% of startups were founded by a woman and start-ups with exclusively women founders garnered just 0.9% of total capital raised in

the region.


A key cause of the lack of funding may well be the paucity of women in leadership roles at the VCs, which make the larger investments in startups. Research by PitchBook showed that 65% of VC firms in the US still have zero female partners or general partners; Deloitte found that women make up only 11% of VC deciders; and Fortune noted that these decision-makers invested 86% of their capital in all-male teams. Research led by London Business School assistant professor Dana Kanze even showed that venture capitalists posed different types of questions to male and female entrepreneurs, asking men “promotion” questions about the potential for gains and achievements while asking women “prevention” questions about safety and the potential for losses. Entrepreneurs who fielded mostly prevention questions went on to raise US$2.3 million for their startups, about one-seventh of the US$16.8 million raised by entrepreneurs who were asked mostly promotion questions.


The impact of the lack female founders and funding for their startups is huge. Analysis by BCG showed that global GDP could rise by approximately three percent to six percent, boosting the global economy by US$2.5 trillion to US$5 trillion, if women and men participated equally as entrepreneurs.

The solution seems straightforward. VCs clearly need to increase both the number of women who are partners and the amounts they invest in firms led by women. And that shift to support women better would be highly beneficial. “When US VC firms increased the proportion of female partners,” WestRiver Group managing director Lisa Stone told TechCrunch, “they benefited with 9.7% more profitable exits and a 1.5% spike in overall fund returns annually.” Data from All Raise and PitchBook similarly showed that 69.2% of US VCs that were in the top quartile of fund performance between 2009 and 2018 had women in decision-making roles. Private equity and angel investors could similarly benefit by funding more women.

Overcoming current mindsets and increasing the number of women in leadership roles at VCs may well be difficult. Firms need to change, though, and they will most likely continue to underperform until they do. VCs such as First Round that invest more than average in women-founded startups, on the other hand, are likely to be true winners. VCs should make the shift.


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