As the world continues to evolve, so does the realm of entrepreneurship. With women leading businesses in record-breaking numbers, it's no surprise that investing in women-led startups is becoming more mainstream. But here’s the catch – venture capitalists are still missing out on a huge opportunity by not recognizing the ROI potential of these businesses. In this blog post, we delve deep into why investing in women-led startups isn’t just an ethical choice but also a smart business decision with significant returns on investment. So sit back and get ready to explore how female leadership can drive success for your portfolio.
Overview of Statistics
There is a clear opportunity for venture capitalists to invest in women-led startups and realize a positive return on their investment (ROI). Women-led startups outperform their male counterparts in several key areas, including capital efficiency, revenue growth, and exits.
Despite these clear advantages, women-led startups still receive a small fraction of venture capital funding. In order to close this funding gap, venture capitalists need to make a concerted effort to invest in women-led businesses. There are a number of reasons why investing in women-led startups can be a smart move for venture capitalists. For one, women-led startups tend to outperform their male-led counterparts. A study by First Round Capital found that companies with a female CEO had a 63% higher return on investment than those with a male CEO.
Another reason to invest in women-led startups is that they are often underserved by the VC community. According to a report from Pitchbook, only 1.9% women led startups garnered investment. This makes investing in women-led startups a smart move for any venture capitalist.
The Benefits and Advantages of Early Stage Investment
There is a growing body of evidence that suggests investing in women-led startups can be extremely lucrative. A recent study by First Round Capital found that companies with a female founder performed 63% better than those without. And yet, despite this evidence, women-led startups only receive around 3% of all venture capital funding.
So what explains this discrepancy? One reason may be that VCs are still largely male-dominated, and tend to invest in other men. As I mention in my Tedx Talk- Fund Women, Save The World, we need more women investors at the decision making table. This is because people tend to invest in people they identify with- this is why we need more investors who are Women, biopic and LGBTQ+ to reflect the underserved people who have not been receiving VC funding for this reason.
The statistics below provide an overview of the current state of women in entrepreneurship and venture capital.
Why Invest in Women-Led Startups?
There are also some very real benefits and advantages to early stage investment in women-led startups.
One benefit is that you can get in on the ground floor of a potentially high-growth company. Women-led startups have been shown to grow at a faster rate than those without a female founder, meaning there is more potential for upside.
Another advantage is that you may be able to tap into new markets and customer segments. Women have been shown to be more likely than men to start companies in underserved markets, such as healthcare and education. This means there is often untapped potential in these businesses that can be tapped into by early investors.
Investing in women-led startups can help support gender diversity in the tech industry. Just by putting your money behind these businesses, you can help create an environment where women are valued and respected as entrepreneurs. This not only has the potential to improve financial returns, but also helps make the tech industry a more inclusive place for everyone involved.
What Should Investors Know Before Investing?
Historically, women have been largely excluded from the world of venture capital. But there is a growing body of evidence that investing in women-led startups can be extremely profitable.
One study found that companies with a female CEO outperformed their male-led counterparts by 63% over a six-year period. Another found that startups with a female founder raised 20% more money while achieving 35% higher ROI.
So why aren't more VCs investing in women? One reason may be that they simply don't have enough experience working with them. As one investor put it, "There's just not enough deal flow [of women-led startups]." Personally I see plenty of desk flow every day- the women are just not getting funded.
There are plenty of talented and ambitious women out there starting companies and seeking funding. So if you're a VC looking to get in on the ground floor of the next big thing, don't overlook the many potential investments to be found in women-led startups.
How to Identify High Potential Women-Led Startups
In recent years, there has been a growing body of evidence that investing in women-led startups can be extremely lucrative. Yet, venture capitalists continue to overwhelmingly invest in male-founded startups. One explanation for this missed opportunity is that VCs simply don’t know how to identify high potential women-led startups.
Below are some key indicators that a startup may have what it takes to be a big success despite being led by a woman:
- The team has a strong track record of working together and achieving results.
- The startup is addressing a large market opportunity with an innovative solution.
- The company has already secured significant customer traction and/or revenue.
- The founding team includes individuals with deep domain expertise and/or proven entrepreneurial experience.
- The startup has assembled a world-class advisory board and/or investors.
Strategies to Overcome the Unconscious Bias
- Advocate for change within the venture community.
- Make an effort to seek out women-led startups. Don’t just wait for women-led startups to come to you—go out and find them! There are plenty of great resources out there, like All Raise, that can help you connect with talented female founders.
- Educate yourself and others on the benefits of investing in women-led startups. There’s a growing body of evidence that shows investing in women-led companies is not only the right thing to do, but it also makes good business sense. Make sure you’re up-to-date on this research and share it with your colleagues (including those who may be skeptical).
- Seek out a female-founded VC fund, focused on women founders.
The first step is acknowledging that there’s a problem. The lack of gender diversity in VC is well-documented, and it’s time for the industry to take responsibility for its role in perpetuating this inequality. Promote women-led startups within your firm and encourage other investors to do the same.
Overall, the ROI of investing in women-led startups is a missed opportunity for venture capitalists to increase their returns and tap into potentially lucrative markets. Women can be just as successful entrepreneurs as men, but they often lack access to capital or face significant challenges due to gender bias or discrimination when it comes to fundraising. By increasing investments in women-led startups, venture capitalists have the potential to maximize their ROI while also supporting more equitable outcomes for female founders and creating positive societal impacts from broader economic activity.
As the founder of She Angel Investors, I gave a TEDx talk to discuss the importance of funding women. We need more female investors so that more women will receive funding. Women get 2% of VC funding but are over 50% of the population.
We can’t afford to leave 50% of the brain power on the sidelines. Their ideas, innovations, and cures will help save the planet.
