Female-Founded Startups Generate More Revenue and Do It With Less Funding
At this point, it’s a sad but well-known fact that female entrepreneurs receive a tiny fraction of all venture capital funding — a minuscule 2.2% last year to be exact.
That’s in part because companies started by women are simply unable to raise as much money as their male counterparts. A study released yesterday from the Boston Consulting Group and MassChallenge, a network of startup accelerators, found that of the 350 companies examined, the average woman-founded startup received $935,000 in funding. That’s less than half of the $2.1 million awarded on average to the male-founded startups in the study.
“The investment gap is real — and larger than we thought,” write the authors of the report.
That’s downright depressing. And yet there was one bright spot in the data: The female-founded startups outperformed their male counterparts’ in terms of revenue, bringing in $730,000 over a five-year period versus $662,000 for the men. When you crunch the numbers, that means these women-run companies are returning 78 cents per dollar compared to 31 cents for the men.
Some of the reasons for the disparity in funding highlighted in the report will sound familiar to Broadsheet readers. Women are more likely to receive pushback during their pitch presentations, and often investors assume they don’t have technical knowledge. The researchers spoke to one woman, who co-founded a business with a male partner, who told them, “When I pitch with him, they always assume he knows the technology, so they ask him all the technical questions.”
Women are also more conservative in their projections and may ask for less, the researchers found. Meanwhile, “men often overpitch and oversell.” And investors, who are primarily men, may suffer from “affinity bias” — that they back the people and products they know.
The authors calculated that VCs could have made an additional $85 million over five years if they’d just invested equally in both the female- and male-founded startups.
So the real lesson here is for investors: They’re majorly missing out.