Despite receiving less funding than male-founded ventures, women-owned companies are generating more revenue, a study has found.
Looking at data on investment funding and revenue generated by 350 US-based startups over five years, a report written by The Boston Consulting Group (BCG) in conjunction with startup accelerator MassChallenge found women-founded startups 78 US cents for every dollar of funding, compared to 31 US cents for those founded by men.
Jane Danziger, partner and managing director in BCG’s Sydney office, said, “Women-owned startups are more effective at generating revenue from each dollar of investment. Women are a better bet for financial backers.”
With the 350 startups included in the study all MassChallenge alumni, the report found startups founded or cofounded by women received, on average, US$935,000 in venture capital funding – half the US$2.12 million raised by male-founded companies.
In spite of this, the report found women-owned companies generated 10 percent more in cumulative revenue over five years, US$730,000 compared to US$662,000.
The report found the gap in funding is “due to gender”, with three key issues the main contributors.
Firstly, women face more challenges, the report found, particularly around technical know-how, and tend to take feedback on board and push back less.
An investor quoted in the report stated that, when they receive negative comments about aspects of their pitch, “most guys will come back at you in those situations. They’ll say, ‘You’re wrong and here’s why.’”
Men are also more likely to make bold predictions in pitches, whereas women can be more “realistic and reserved”; when pitching to VCs who are all after ‘the next big thing’, the bold prediction often wins out.
Another key issue, according to the report, is that male investors “lack affinity” with the products and services many women-founded and owned businesses market to other women, and in turn struggle to see the need for or the potential value of the idea.
“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,” Danziger said.
The report makes three key recommendations for stakeholders in the industry to close the gap: for investors to be aware of their biases, bring women into their teams, and understand the returns of investing in women; for accelerators to “seek a balanced slate of applicants” and bring women into their coaching and expert teams; and for women to avoid underselling their ideas when pitching, seek VCs that invest in women, and make use of supportive networks.
The Boston Consulting Group report isn’t the first to publish figures showing women-founded and owned companies outperform their male-founded counterparts.
First Round Capital in 2015 published a report on 300 of its portfolio companies and their almost 600 founders that found teams with at least one female founder performed 63 percent better than those with all-male teams in terms of increase in company valuation since the firm made its investment.
McKinsey too reported in 2015 that companies in the top quartile for gender diversity are 15 percent more likely to financially outperform those in the bottom quartile.
Another factor here is ethnic diversity; the same McKinsey report found that companies in the top quartile for ethnic diversity are 35 percent more likely to financially outperform those in the bottom quartile.
Looking at Australia, Danziger believes Australian investors are looking to diversity.
“The good news is Australian venture capital funds are moving in the right direction, particularly by encouraging both diverse investment panels and applicants. There’s a still a long way to go to, but the evidence is clear: investing in women pays off,” she said.