Gender Differences

Why Female CEOs Are Getting More Funding

Why Female CEOs Are Getting More Funding
Image credit: Oliver Munday
This story appears in the December 2014 issue of Entrepreneur. Subscribe »

You’ve probably heard the statistics. Women are starting businesses at one and a half times the national average. Yet female founders receive just 25 percent of angel investments in the U.S., and companies with a woman CEO get just 3 percent of venture capital. 

Investment groups such as Golden Seeds and BELLE Capital USA, which bankroll women-led companies, have worked toward shrinking this financing gap for years. Same goes for mentorship organizations such as Springboard Enterprises and Astia, which educate women on raising capital and provide access to it. But lately they have a lot of company. Angel investment groups and boot camps designed to get female entrepreneurs funded and more women to the investment table are cropping up throughout the U.S.: X Squared Angels, 37 Angels and Pipeline Fellowship, to name a few. 

Andrea Paul, co-founder of Board Vitals, approached 37 Angels in 2013 when seeking $500,000 in seed money for her medical test-prep platform. Two investors from the group contributed, and several introduced the MD-turned-entrepreneur to educational publishers that now provide content for the startup’s online question bank.  

“There’s definitely value in having female mentors, female VCs and female angels to make you feel like you’re not the only woman out there doing this,” says Paul, who’s based in New York. “We haven’t found this level of support anywhere else, and we believe it’s due to successful women who want to help the next generation of female founders along.”

Angela Lee founded 37 Angels in 2012 for that exact reason. Women account for only 22 percent of accredited angel investors and 6 percent of partners at venture capital firms. But studies show that the more women there are investing, the more women-led startups score capital. 

“We all tend to do business with people who are like us in some way,” says Lee, a New York-based serial entrepreneur and investor, and assistant dean at Columbia Business School. “That’s backed up by lots and lots of research. People invest in people who think like them. And when you’re sitting across the table from, for the most part, Caucasian young men, that just makes it tougher for women.”

37 Angels has made investments of $50,000 to $150,000 in 25 startups. The group also offers a multiweek boot camp. “We’ve had several people take this curriculum and get a job in venture capital,” Lee says.

Carol Clark of X Squared Angels cites another reason for the capital gap: the discrepancy between the many types of startups women launch and the types of startups men invest in—mostly software and biotech. To narrow the gap, last year Clark founded her Columbus, Ohio-based investor group. X Squared—which has 22 members, more than half of whom are women—has invested up to $447,500 in 10 companies in the publishing, education, retail, fashion and software sectors.

“There’s a whole other area of companies that are investible that a lot of the large money outfits won’t look at,” says Clark, who ran a software training company for 26 years. “That might be consumer goods, it might be services, it might be medical services. And usually those are not ones that the venture capitalists and angels are interested in.”

But this isn’t just about extending opportunity. Investing in women is smart business, says Kathryn Swintek, general partner and member of the Investment Committee of Golden Seeds Fund 2, part of New York-based angel network Golden Seeds, which comprises more than 275 investors, 80 percent of whom are women. 

Studies confirm this. A 2012 Dow Jones report found that startups with more female executives have a better shot at success. Likewise, a 2013 SBA report found that VC firms that back female founders make more money.

As Swintek points out, “Diversity leads to better returns.”