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When choosing a startup to invest in, many funding providers will prefer a startup with a male founder and... lose their money. Here are a few reasons why female-founded startups appear to be a better bet.
According to the statistics, only 1% of early-stage capital flows to female-founded (or co-founded) startups. This alarming figure indicates that investors are driven by a lack of confidence in women's entrepreneurial competence. The analysis conducted by Boston Consulting Group and MassChallenge (2018) proves them wrong. The study shows that startups founded and co-founded by women actually perform better, generating 10% more in cumulative revenue.
How do female-run startups produce more revenue?
• Having collaborated with MassChallenge, a US-based global network of accelerators, BCG spoke with investors, business mentors, and owners to get a sense of how they perceive the current position of women in entrepreneurship. According to the pitching experience of those questioned, female entrepreneurs’ presentations are typically subject to pushback, whereas the founders themselves are usually bombarded with basic technical knowledge questions in order to establish their competence. Now, how may this benefit one’s future performance?
The more pushback you receive from VCs, the more chances you have to perfect your pitch, refine your business plan, and design around the flaws - all of which increases the likelihood of a better outcome once a company is set and, thus, results in female-led startups being more qualitative and profitable.
•Another point found in the BCG report is that women founders are more prone to making conservative business projections, which indicates their tending towards financially responsible decisions. Female entrepreneurs are pragmatic about evaluating risks and investment volume they seek, willing to give investors a realistic picture of their project’s success. The figures below show that such companies turn out to be more efficient providing three times higher return on investment.
In terms of how effectively companies turn a dollar of investment into a dollar of revenue, startups founded and cofounded by women are significantly better financial investments. For every dollar of funding, these startups generated 78 cents, while male-founded startups generated less than half that—just 31 cents.
BCG concluded in their report.
•According to another research (2012) conducted by Kellie McElhaney, the Founding Director of the Center for Equity, Gender, and Leadership, corporations that have women executives in the team tend to prioritize corporate social responsibility initiatives:
Women and sustainability are two sides of the same coin …. Corporations build better societies if they have balanced boards.
Halla Tomadottir, executive chair and co-founder of Audur Capital in Iceland
Now, how does the data above correlate with the possible profit that such a project may bring? The statistics obtained from Cone Communications research (2017) show that the modern consumer is more willing to buy a product of a socially responsible company with good environmental, social, and governance (ESG) performance. This can be proved by the figures provided by The Ethisphere Institute:
Our annual practice of tracking the stock prices … found that listed 2020 World’s Most Ethical Companies outperformed the large-cap sector over five years by 13.5 percent.
• Finally, females support females. Having accomplished much in their entrepreneurial career, successful women are willing to share their knowledge with aspiring enthusiasts, contributing to the creation of even more qualitative and sustainable startups. Fe/male Switch is a bright example of such a project. We are a female-founded startup breaking down the stereotypes of women in leadership. Therefore, we would like our experience to encourage more women entrepreneurs to believe in themselves and continue fighting for their ideas that one day will surely turn the world around!
Here is some advice for a future lady boss:
•Don’t underestimate yourself and don’t undersell your company.
•Support other female entrepreneurs and expand your network. Be aware of which VC firms are led by women or have a strong record of investing in women. For example, a female-led VC firm called Rethink Impact invests in companies with gender-diverse leadership teams that use technology to generate social impact.
•Be ready for a challenge and introduce yourself to continuous learning. Take on some courses on how to become a great entrepreneur and if you’re looking for one - join Fe/male Switch startup simulator and experience the constant roller coaster that female entrepreneurship is!
References:
- Why Women-Owned Startups Are a Better Bet (06, Jun 2018) by Katie Abouzahr, Matt Krentz, John Harthorne, and Frances Brooks Taplett.
-Why only 1% of early-stage capital flows to female founders(19, Feb 2021) by Peak.
- More Female Board Directors Add Up to Improved Sustainability Performance(15, Nov 2012) by Pamela Tom, Kellie McElhaney.
- 2017 Cone Communications CSR Study by Cone Communications.
