Greater diversity among funders and founders drives higher returns
When it comes to Venture Capital, there’s a financial incentive to close the gender gap: Greater diversity yields higher returns. Startups with a female founder generated 78 cents of revenue for every $1 of funding, while male-founded startups generated 31 cents, according to a BCG study of 350 startups.
But despite the financial argument for diversity, just 17 percent of startups in the U.S. last year had a woman founder, according to Crunchbase. Two percent of VC funding went to female founders, according to Pitchbook.
One reason such a small percent of funding goes to women founders: Just about 9 percent of partners at VC firms are women. Three quarters of U.S. venture firms don’t have any female partners at all.
“We have a long way to go to get to parity,” said Beth Ferriera, Managing Director at FirstMark Capital, at Fortune’s Most Powerful Women Next Gen conference in Laguna Niguel, California, earlier this month. ” But we are seeing a shift in the conversation and more people talking about [not] only funding female founders, but thinking about who are the funders around the table.”
At Ferriera’s last fund, WME Ventures, half of the investment team was female, and half the investments were in female-led companies, including Glossier and Daily Harvest. She says she benefited not only from her personal perspective on the businesses targeting women consumers, but also her ability to connect with female founders.
“We had a great pipeline of women-led businesses, and I think we were able to see these opportunities and see the vision of these women. And also when those deals became competitive, we were able to build relationships with those founders that maybe some of our male counterparts were not able to.”
A growing number of organizations focused specifically on closing the funding gap have emerged in the past year. All Raise is focused on driving success for women in Venture Capital, both as funders and founders. #Angels helps educate VCs and startups on the value of bringing women into startups early. It’s also focused on educating investors on how more diverse teams help yield higher returns.
“Our little cottage industry made up of small firms are highlighting the importance of diversity. They are finally getting it, and for that, I am ecstatic,” said Maha Ibrahim, a partner at Canaan. “We’ve got to make sure as an industry that those women, and those quote-unquote ‘diverse hires’ are not looked at as diverse, but are looked at as incredibly productive and high-performing and equal members of the team.”