Startups with female founders raise more capital

The workplace glass ceiling is far from broken across the world yet a study of US venture capital startups by the California-based Kauffman Fellows Research Centre shows the importance of having women on board new companies.

Using data from market research business Crunchbase of more than 90,000 US venture-backed companies from 2001 through 2018, the analysis by the Kauffman Fellows Research Centre found that those companies with at least one female founder raised 21% more in venture capital funding than companies with all male teams.

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In earlier funding rounds, mixed-gender teams perform as well as those without women, but things change in the later stages of fund raising. In the third and fourth-round raises, companies with at least one female founder secured on average US$23 million in venture capital investment, compared with $18 million on average for all-male teams.

Despite this evidence, only around 22% of all startups are founded by at least one woman, the survey by Kauffman Fellows found.

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Conversely, all-women venture capital teams had the hardest time raising money, especially if they run what are considered “gender-neutral” businesses. Research from PitchBook found that of the $130 billion in venture funding invested in startups last year, only 2.2% went to those run by all-female teams.

“Very few women in the past have been given the opportunity to showcase the track record of success,” Collin West, co-founding partner of the Kauffman Fellows Fund and an author of the report told Bloomberg.

“Thus those women continue to get passed over. So we’re in this vicious cycle.”

The study adds to growing evidence that diversity at a company, in leadership, and in staffing, leads to better financial results, West said. A team with more diverse members will consider a wider range of ideas and with the small size of most startups, even one woman has a significant ability to influence the company, he said.

“Boom, suddenly you go from zero to one voice in the room,” West said. “Hopefully when people start looking at this data, they start saying, ‘Well shoot, me and my two buddies from Stanford should maybe go and do some outreach and make sure that we bring someone on that has a unique point of view, because we don’t.’”

A more gender diverse team may pursue projects that a homogeneous, male-dominated startup might not consider. The homogeneous team would miss potential opportunities due to its inability to conceive an alternative perspective, Kauffman Fellows reported.

“Diversity is vital to startup growth, as it provides a greater pool to generate ideas from, and allows for a greater understanding of potential consumer models,” explains Lisa Feria, CEO of the Midwest venture capital firm Stray Dog Capital.

“While the stereotypical startup is led by young men on the East or West Coast, that is not and should not always be the case.”

The Kauffman Fellowship, named after Ewing Marion Kauffman, is a two-year educational, networking, and leadership development program for venture capitalists.

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