Businesses Need More Women Investors. Here's How That Can Happen.
Female investors who share knowledge and guidance with other women founders will improve the likelihood of success and return for the investors.
According to the U.S. Census Bureau, there are 1.1 million women-owned businesses with employees and 10.5 million women-owned companies without employees. But those more than 11 million companies owned by women only captured two percent of the available venture funds in 2021 — the lowest percentage since 2016. That amount is actually $6.4 billion, according to PitchBook, which sounds substantial until we look at the total venture capital (VC) dollars invested in 2021: $330 billion across the U.S.
However, when female founders partnered with male co-founders, those teams realized 15.6 percent of the VC funding. A disheartening message for the brilliant young women coming up in the business world today. Additionally, we know that when an all-male team adds a woman, the business is 65 percent more profitable for its investors. It is hard to justify those two stats: more women on teams = more investor return. But with a woman in the lead, the business is not likely to be funded. The message here is frustrating. Is it okay for women to be on the team and do the work, but not be the lead founding partner? Certainly, from a woman's perspective, that just can't be true. But could it be true that most investors are men, and we all tend to gravitate towards supporting that with which we are familiar?
Related: Where Are All the Female Investors?
Why do women get less funding than men?
One theory is that most VC general partners, and many angel investors, are still men. A woman who is heavily engaged in the investment world put together this rap comparing angel funds to venture funds. It gives us a glimpse into the different approaches of the two types of investing that could indicate where a woman investor feels most comfortable. According to the New York Times' DealBook, at the end of 2019, 12 percent of general partners at VC firms were women, and there were 740 female angel investors. Today, women make up 15 percent of general partners at VC firms, and there are now about 1,000 female angel investors. Becoming a general partner at a VC firm is a much bigger career commitment than investing personal dollars into an angel fund, angel network or directly into a company via an individual angel investment.
Angel investing has seen more growth in female investors than in VC funds, which has impacted the outcomes for female founders. Angel investing provided funding for women at a much lower rate than male-led companies, but at a substantially higher rate than that of VCs.
Research suggests that women seek angel funding far less frequently than men but have an equal probability of receiving investment. Why is this? We can draw the possible conclusion that when pitching to angels, female founders meet more female investors who are inclined to support them. A bit of optimism is that angels tend to invest at earlier stages, so these funds should help move the female-owned businesses along the trajectory to high growth. This could mean more VC dollars in the future, or the actual goal, more high-growth exit events for women.
Another theory is that the types of businesses women are starting may not be the types of businesses VCs and angels will be interested in funding. In general, women start local businesses, are part of a community and solve a problem that is important to them. Examples might be service industry solutions in healthcare, pet care or home goods. In general, men have traditionally looked at the bigger impact of their local ideas and leaned towards tech and manufacturing. This could be due to previous lifestyles where the man was the breadwinner and the woman had a hobby (side gig) that brought in some extra cash. Certainly, we have moved past these antiquated gender roles.
Women also could be shying away from this level of funding. Perhaps out of fear of the statistics, fear of rejection and the loss of time and attention to the growth of their businesses while pursuing this level of funding. I have seen women spend months preparing for a pitch, only to be turned away at the first round, all the while losing precious time operating her business. I have also seen women pitching and feeling grilled by the investors on the problems facing their businesses. Men pitching tend to get growth-oriented questions. A woman is put on her back foot in these situations and has trouble recovering and appearing confident in her business.
However, should a woman decide this is the route she wants to take to spur the growth of her business, she should have an equal opportunity to be successful in accessing capital. And in turn, having the opportunity to pitch to more women, which, in theory, would improve her chances.
How are women investors unique?
When building a team for a high-growth business, diversity of thought, background, race, gender and experience will create a higher propensity for success. Similarly, having a diversity of investors is also an ingredient for success for the investors' returns and the well-being and growth of the company pitching. Women investors will likely have different perspectives and skill sets and may relate better to the female founder pitching her business.
Women and men still have very different career choices and experiences, which, combined with their male counterparts, offer a well-rounded perspective on the pitching company's value proposition. Having female investors who will also share knowledge and guidance with other women founders will improve the likelihood of success and return for the investors.
What could be the impact of more women investors?
Going by the numbers, adding more women to the investment pool can only be positive. Whether as an angel with their own funds or as a general partner in a VC firm, the results will be more female-founded companies that will see higher rates of success in accessing early- to mid-stage funding. As their businesses grow from early-stage investments, we will begin to see more female-owned businesses at the VC table with male founders. This is an abundance mindset — the more strong businesses, regardless of the founder's gender, that receive funding, the more the growth of our economy. And the more women founders see other women receiving funding — the more who will be entering that Billion Dollar Club, like Sara Blakely.
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