The venture capital industry has a severe gender inequality problem. Only 12 percent of women make decisions at many VC firms, and most firms still don’t have any female partners. Female founding partners only make up 2.4 percent of all partners. This is key because the founding partners primarily control a firm’s investment decisions.
One of the results of this lack of gender inclusion in asset management firms is equally abysmal VC funding to female-led startups. In 2020, just 2.3 percent of VC investment went to female-led startups, Crunchbase data shows.
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The pandemic exacerbated this with a 27 percent decrease of venture funding going to women-led startups in 2020.
This lack of investment in women-led VC funds and startups has many reverberating repercussions throughout the U.S. and global economy.
Less representation = less innovation = less alpha
When half of the population is excluded from VC funding, there is an enormous loss to address half the world’s pain points, a missed chance to deliver products and services to a market with enormous spending power, and thereby a failure to tap into massive pools of alpha.
Today, more than $10 trillion of total U.S. household financial assets are controlled by women. By 2030, women will control about $30 trillion in financial assets that the baby boomer generation possess—this substantial amount could potentially equate to the annual GDP of the U.S.
Having more diversity in boardrooms, C-suites, funds and startups is a way to incorporate diverse POVs, and include a wider experience base and intellectual capital.
This glaring gender imbalance represents significant capital and returns being left on the table. For example, valuations for startups with at least one female founder are 63 percent higher than for those with all-male founding teams.
According to an S&P Global study, compared to the market average, female CEOs and CFOs produce remarkably better stock performance. Further, the study indicates, “In the 24 months post-appointment, female CEOs saw a 20 percent increase in stock price momentum.”
A BCG study found that when women pitch their ideas to investors for seed capital, they receive substantially less than men. However, companies founded by women ultimately deliver 2x more per dollar invested.
The lack of gender equality and the correlated funding gap in female-led startups drastically impacts overall jobs for women. Startups with a female founder employ 2.5x more women while companies with both a female founder and a female executive hire 6x more women.
Additionally, numerous studies demonstrate the link between gender inclusion and income inequality. Higher gaps in labor force participation rates between men and women commonly result in unequal earnings between genders, thus creating and exacerbating income inequality.
Company culture and responsibility
New data suggests that gender-inclusive leadership is associated with increased corporate social responsibility. Moreover, there’s a significant correlation between gender diversity and employee satisfaction for all employees, not just women.
Increased gender inclusion is linked to improved risk management through the reduction of controversies concerning income inequality, sexual harassment and equal opportunity litigation. In the boardroom it has also been found to lower incidences of financial misconduct, with gender diverse boards committing fewer financial reporting mistakes and engaging in less fraud.
Time for inclusion is now
It is long past due for the asset management industry to more directly represent the diversity of people in our society and world. We must collectively decrease the outdated habits and unconscious bias that prevent institutional investors from recognizing the immense talent and potential of ideas presented to them.
Illustration: Dom Guzman
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