Study confirms female-led startups are doing more with less
Startups founded by women are getting less VC funding than those founded by men, but are going on to generate more revenue.
A study of over 350 US-based startups over five years has found that startups led by females are a better bet for investors and are also proving themselves better at generating more revenue with less initial capital.
The study, a joint effort between The Boston Consulting Group and startup accelerator network MassChallenge, found that female-founded and co-founded startups raised an average of US$935,000 in venture capital (VC) funding, which was less than half of the average US$2.12 million that male-founded companies raised.
However, male-founded companies generated 10% less in cumulative revenue over five years, US$662,00 compared to US$730,000.
The report noted that the findings are statistically significant.
"We ruled out factors that could have affected investment, such as education level of the investors and the quality of their pitches... The results, while disappointing, are not surprising."
The report explained that women are usually subjected to different questions when pitching for VC funding, such as questioning their basic technical knowledge. Men are also more likely to make bold projections that appeal to VCs looking for the "next big thing" while female founders' projections tend to be more reserved and realistic.
“Women-owned startups are more effective at generating revenue from each dollar of investment. Women are a better bet for financial backers,” said Jane Danziger, partner and managing director in BCG’s Sydney office.
"Often women have to prove their credentials or skills before they can really start promoting their ideas. And unfortunately, many men simply don’t understand and therefore see the potential in the ideas women pitch to them.”
While the research is US-centric, Australia has been dealing with its own gender issues in the startup space. Startup Muster's findings, released in November 2017, found that only one-quarter of startup founders (25.4%) were female. While this is a slight increase from 23.5% in 2016, it's still nowhere near where we need to be.
The results outlined above demonstrate that female-led startups have the potential to demonstrate impressive revenue despite starting out with less initial capital, and this should be incentive enough for investors to get behind more female founders.
The report makes a few suggestions to close the gender funding gap:
- VCs and investors should be aware of the biases that exist against women. They need to bring women into the decision-making teams and understand the returns of investing in women.
- Startups and accelerators should seek balanced applicants and bring women into coaching and expert areas.
- Female founders should avoid underselling ideas when pitching and also seek VCs that invest in women. Female founders should also make use of any supporting networks that exist.