Investing In Startup Companies Led By Women
Investing in women entrepreneurs.
Gain Investors’ Staff
Why invest in a women-led start-up? The bottom line is that female entrepreneurs and startups tend to have a harder time finding capital than their male counterparts and are left asking themselves how to finance their startup. Why? Well, there are multiple reasons as to the “why” but, in short:
- Women tend to begin their journey through small business startups; basically, not in the group of high-growth companies.
- Women’s social networks are less likely to include men venture capitalists because women tend to socialize with other women. In these groups we are less likely to find women venture capitalists due to the small percentage of women investors in this world.
- Women led businesses may have the perception of being a higher risk investment attached to them based on the fact that WLBs, in general, experience lower growth and profitability due, mostly, to the limited access in funding.
All of these reasons found in a research study and result in a closed circle; however, this doesn’t mean that venture capitalists and angel investors should not reconsider women led businesses.
To start, a look at some information that gives purpose to this article.
- Only three percent of U.S. venture-capital goes to businesses with women CEOs. A sign of potential bias and market failure. Alone, it provides a plethora of opportunity to capitalize on.
- WLBs can be successful. The Muse, a job search site, is just one example of female led startups that were backed by male investors.
- Based on research, venture capital firms that invested in women entrepreneurs perform better.
- Young women tend to be predictors of what will take off in the market. Women tend to know what other women want (of course, there are men that have built products for women and met this markets’ needs too.)
- An analysis performed by a seed-based fund regarding 10 years’ worth of investments revealed an important finding: “Female founders outperform their male peers.” For this fund, companies that had a female founder performed 63% better than all-male teams. In fact, three of the teams in the top 10 investments had at least one female founder.
Companies with women in leadership positions perform better
Companies that had women in leadership positions performed better than their all male counterparts. Why is that? We can speculate here for a minute that outperformance can be due to women’s effective time-management skills and their aptitude for reaching their goals. For example, Kevin O’Leary’s portfolio, which includes women run firms, showed that women reached their goals 90 percent of the time (compared with 65% for their male counterparts.)
Furthermore, diverse business teams that include minorities and women challenge old ways of thinking, are more likely to re-examine facts, innovate more and have sharpened performance. Studies, such as the experiments that were conducted in Texas and Singapore, showed that diverse teams were more accurate in their predictions. In one particular study diverse teams were 58% more likely to price stocks correctly as compared to their non-diverse counterparts.
What about innovation? Two independent studies were looked at. One conducted in Spain showed that companies with women were more likely to introduce innovations into the market. The other, conducted in the U.K. produced similar results. Innovative products help businesses stay competitive, something every investor should be looking for when deciding on whether or not to invest in certain entrepreneurs, small businesses, or startups.
Females need the backing of other women investors
The bottom line is that when women venture capitalists invest in female-led start-ups the project is 21% more likely to succeed. The problem? In preliminary findings, Travis Winstanley found that only one in six investors in the U.K. investment community was a woman. In the U.S., the number is only slightly higher where 19.4% of angel investors are women (2013 results). With such a low number of women that are considered angel investors, venture capitalists, and the like, start-ups led by women have a harder time finding the right investor.
Other research has found one of the reasons behind the low number of women investors: the majority of women aren’t investing their money in stocks or shares, they invest sometimes in property but mostly hold onto cash funds. But don’t fret, this is slowly beginning to change.
One investment group, Golden Seeds, focuses on investing in WLBs early-stage projects. Each month, open meetings are held for WLBs to have a personal one-on-one meeting with an investor. The investor reviews the project and provides feedback on whether or not the WLB is ready for funding. The company has invested more than $90 million in WLBs.
Women need to remember that they don’t need to be rich in order to invest. With new rules on investing, almost anyone can go ahead and invest even a small portion of their earnings. Women already donate to charities, so why not take the risk (an educated one) and invest in someone that may have a greater impact on our lives and get a return? A “kill two birds with one stone” option.