Women-led startups tend to outperform those led by men. / Unsplash
What you probably already know: Despite some significant wins, female founders face an uphill battle despite several metrics that show women-led companies create a higher return on investment. Women represent just 13.7% of founders in million-dollar startups, a slight decline from three years ago, while female-led companies received 14% less VC funding than their male counterparts despite identical pitches, according to women’s startup simulator Fe/Male Switch. That’s not to say there haven’t been some victories: Thinking Machines Lab, an AI startup founded by former OpenAI CTO Mira Murati, closed a $2 billion seed round July 15. San Diego-based Element Biosciences, led by CEO and co-founder Molly He, closed a $277 million Series D round a year ago, among the largest of 2024.
Why? Boston Consulting Group, in a study with the provocative title, “Why Women-Owned Startups Are A Better Bet,” found that startups founded or cofounded by women garnered less in investment but generated more revenue: For every dollar of funding, women-led startups (over a five-year period) generated 78 cents for every dollar of funding. Male-founded startups generated just 31cents. However, women tend to receive more pushback from investors because of perceptions that they don’t possess enough technical knowledge. Many male investors may also lack sufficient familiarity with the products and services that women-founded companies develop for female consumers.
What it means: Some stats can be misleading. One oft-cited statistic says women entrepreneurs receive only about 2% of venture capital funding, but that includes data only on the gender of company founders. It excludes women in top executive positions who may also have significant equity stakes. Women-led companies also enjoyed their highest level of VC exits last year — 24% — the fourth consecutive year of growth. And though only 9% of IPOs last year were led by women, that’s seven times as many as 10 years ago. The Harvard Center for International Development found that women-founded enterprises tend to have broader social impact, benefiting families and communities.
What happens now? Eva Ho, general partner at Los Angeles-based Fika Ventures, told Formidable recently that countless VC firms say they want to level the playing field but “many are retreating back to the comfort zone and not taking risks with emerging managers,” adding that women may have to “try 20% harder than a man sitting next to you.” The Boston Consulting Group urges VC firms and other investors to “be aware of structural biases built into funding decisions,” noting that it’s “critically important” that VC firms involve women in investment strategies. The good news: Women now hold 17% of decision-making roles at U.S. VC firms. The pace of change is frustrating, but the landscape is evolving.