A recent study conducted by the Kauffman Fellows Research Center demonstrates that diversity does indeed pay off: Startups with at least one female founder among the team raised an average of 21% more cash from venture capital firms than their all-male counterparts. This amounts to US$5 million more in funding on average.
Kauffman’s study analysed data from Crunchbase for more than 90,000 United States venture capital-backed companies and firms between 2001 and 2018. Among its findings, it found that all-male startups raised about the same amount of money as mixed-gender startups during the early rounds of investment. However, the difference becomes noticeable as the startups progress to the third and fourth rounds of funding, with female-led startups raising an average of US$23 million in venture capital investment compared to the smaller US$18 million raised by all-male founded startups.
On the flip side, all-female startups still face significant hurdles when trying to secure funding. The study found that startups that do not count a male founder among its ranks are more likely to get a much smaller portion of venture capital funds. Indeed, research from PitchBook concluded that of the US$130 billion in funds venture capital firms and organizations invested in startups last year, only a measly 2.2% of it went to startups led by all-female teams. Even for those that have at least one female founder, they comprise just 22% of total startups.
Collin West, co-author of the report and one of the founding partners of the Kauffman Fellows Fund, said: “Very few women in the past have been given the opportunity to showcase the track record of success, thus those women continue to get passed over. So we’re in this vicious cycle”.
The study’s analysis and findings contribute to the growing body of evidence that demonstrate how diversity at a startup, whether it be at the leadership or junior level, are leading to better financial outcomes. Startups led by mixed-gender teams will oftentimes come up with alternate solutions to tackle a problem, and usually will have a wider range of ideas and approaches at their disposal to advance the growth of the startup.
Even though women are still facing restrictions when trying to secure venture capital funds, they have been able to adapt and change these restrictions into opportunities. For instance, a study conducted by the Boston Consulting Group found that male founders of a startup are more likely to “overpitch and oversell” whereas the female founders are deemed to be more conservative in their business projections and estimations. However, the female founders are able to turn this “conversative approach” to their own advantage; by not overselling based on emotion or hype, they demonstrate both integrity and realistic, logic-based thinking.
West is hopeful for the world to start noticing the positive impact that women founders have on startups. “Boom, suddenly you go from zero to one voice in the room,” she 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.”
As the growing amount of evidence shows, startups that have at least one female founder are indeed raising more venture capital cash. Mixed-gender startups are not only bringing more diverse approaches and solutions to overcoming challenges, they are also getting stronger financial results.