False Dichotomy: Discussing the Underfunding of Women

The ethical and social arguments against gender bias in venture funding are clear. But beyond that, we’ll present evidence here that this underfunding is a potentially great investing opportunity. The chance to do well and do good is at the heart of AVG’s Anti-Bias Fund, and today we’re devoting this space to the case for female entrepreneurs.

Opportunity 1

You innovate what you know.

Women founders often — but obviously not always — address female consumers. That’s targeting enormous buying power and consumer wealth.

• Women are responsible for driving 83% of all consumption in the U.S.
• They also control over 60% of all personal wealth in the U.S. (Federal Reserve, MassMutual Financial Group, BusinessWeek, Gallup).

 Opportunity 2

If you can’t join them, start a business.

Women are increasingly bypassing the establishment to create businesses at an unprecedented rate.

• The number of businesses owned by women is increasing faster than all businesses — growing 58% in number of companies and 46% in revenue from 2007 to 2018.
• In addition, women of color are starting businesses at a remarkable pace. Between 2008 and 2018, Latinas increased their business ownership by 170% and African American women by 164%.

Opportunity 3

Anti-fragile founders have the grit to win.

One of the most important characteristics of successful entrepreneurs is grit. And let’s face it, women entrepreneurs have to be grittier to succeed. This anti-fragile capability inherent in women-led startups pays dividends in the long-run.

• On average, women raised less than half as much money as their male counterparts. Nevertheless, they earned 78 cents per dollar invested vs. 31 cents for men.
• Private tech companies led by women are more capital-efficient, delivering 35% higher ROI than companies led by men (Kauffman Foundation).
• Though they may start with lower funding levels, women-founded ventures performed better over time, producing 10-12% more in cumulative revenue over five years (BCG, Kaufmann Foundation).
• Startups with at least one woman founder saw 63% higher valuations than those for all-male teams.

The Root Causes of Underfunding

So if the consumers, businesses, and returns are there, why are VCs still underfunding women? Some of it is likely unconscious bias. Most VCs are white men. Over 80% of the industry is male,  and 65% of firms have no female partners or GPs. Human brains are wired to identify with people like themselves and default to following familiar patterns.

This isn’t an insurmountable barrier if the VC dynamic changes. VC firms with a female partner are more than twice as likely as firms without a female partner to back a venture with a woman on the management team (34% vs 13%) and three times as likely to invest in female CEOs (58% vs 15%).

Another reason: Many women aren’t plugged into the right social networks — and this can be a real difference maker. One study showed that female founders “saw a dramatic increase in investment when they had a social connection with the male VC.” Finally, VCs have different expectations and different sets of questions for men and women. In fact, there’s some evidence that they hold women to a higher standard.

The data shows there is a false dichotomy between investing for returns and impact. Our Anti-Bias Fund aims to back ventures that are (1) promising investments and (2) supportive of diverse founding teams and businesses combating systemic biases. If our thesis of doing good and doing well and having a portfolio of venture deals that support women and underrepresented entrepreneurs appeal to you, click below to review fund materials or book a call with a Senior Partner.