By Neal Dempsey
Across the globe, entire industries are experiencing what is now being described as “the great financial lockdown.” The result? Losses of almost every kind.
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But notice that the keyword here is almost. Upon taking a closer look, you’ll find that this isn’t the case for all industries. Some, such as venture capital, have thrived during this period of disruption.
In the latest quarter alone, funding surpassed $160 billion, setting new records for the industry in 2021. Yet, mixed-team businesses received just 11.7 percent of venture funding, and female-led startups raised only 2.2 percent, according to Crunchbase data.
So, where did all the money go? According to the numbers, the majority of this funding was given to all-male founding teams, which received 86 percent of total funding last year. During the same period, funding for female-led startups’ dropped from 2.8 percent to 2.3 percent.
Unfortunately, what these figures show is that not all players are growing at the same rate as the sector. Funding for female entrepreneurs is shrinking year after year, owing in part to the industry’s rejection of their ventures.
But that’s not to say things can’t change.
As the numbers indicate, investing in female-owned businesses is not only the right decision, it’s also the more profitable one. Once investors set their preconceived notions aside, they may discover that these entrepreneurs are excellent candidates for venture capital due to a variety of inherent strengths, qualities and interests.
Female founders deliver higher returns
Diverse teams perform better. But don’t just take my word for it.
According to Boston Consulting Group, female-founded and co-founded startups have a higher success rate, with an average return of 78 cents for every dollar invested, compared to male-founded startups, which have a rate of only 31 cents.
And it doesn’t end there. In fact, BCG estimates that VCs could have earned an additional $85 million by investing in both male- and female-founded startups over a five-year period. Due to their success across a wide range of fields, investing in female entrepreneurs not only enhances performance, but also increases revenue.
So, why do individual treatments continue to vary so greatly? The age-old problem of invasive questioning is one possible explanation. Women are frequently questioned about their gender during interviews, which leads to a loss of confidence and diminished value, ultimately leading us down the failed path of prejudice.
Rather than succumb to this downward spiral, investors should review pitches objectively. That is, of course, if they don’t want to lose any more money.
Female founders drive social change
With a diversified workforce, venture capital offers many opportunities. Given that women purchase 70 percent to 80 percent of consumer goods, investing in women-founded businesses will result in products and services that will appeal to everyone.
“I asked male investors to tell their wives about our product because there aren’t enough women in venture capital,” said Alicia Soulier, founder of SalonScale. “When it comes to raising, having a female perspective can be extremely beneficial.”
Bottom line, businesses need to look at their values and ensure they are fulfilling their obligations. Losing a company because they do not see the value in forming a relationship with you could mean missing out on the next big thing.
“I see your company the same way you see mine. You may be missing out on my company, which has recently surpassed 10x annual recurring revenue, simply because no one on your team looks like me,” said Katherine Regnier, founder of Coconut Software.
“More than anything, investing in women is not a charity—it’s good business sense,” she said.
Neal Dempsey is the managing general partner of Bay Partners. He also provides angel investment for entrepreneurs “in unexpected places” around the globe. Previously, Dempsey wrote on equity in VC for Crunchbase News.
Illustration: Dom Guzman
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