I just recently came across an article from The Case Foundation’s “Breaking Good” newsletter, I literally have tons of these on backlog that I’ve been dying to get through and this was one of the first I wanted to share. The original study that lead to this article was produced by the Boston Consulting Group (BCG) and MassChallenge.
BCG researchers investigated the 1,500 businesses MassChallenge has backed since its founding in 2010, seeking to understand how companies founded by women differ from those founded by men, and of the MassChallenge-backed startups—which have raised more than $3 billion in funding and generated more than $2 billion in revenue—42% have at least one female founder. The data was pretty clear in that companies founded or cofounded by women garnered an average $935,000 in VC investments, which is less than half the average $2.1 million invested in companies founded by male entrepreneurs. Okay – that’s the unsurprising part, and the topic of sexism among female founders and investors is not new, unfortunately. However, what I loved about this article was the light it shined on female tenacity, resilience, adaptation and creativity – and that my friends, is worth sharing and celebrating.
According to the analysis , startups founded or cofounded by women performed better than male-founded startups over time. Despite being comparatively underfunded—and by a large margin—these businesses generated 10% more in cumulative revenue over a five-year period: $730,000, compared with $662,000 for the average male-led startup.
“In terms of how effectively companies turn a dollar of investment into a dollar of revenue, startups founded and cofounded by women are significantly better financial investments,” BCG concluded in its report on the study. “For every dollar of funding, these startups generated 78 cents, while male-founded startups generated less than half that—just 31 cents.”
Some theories why women-founded businesses perform better over time
The answer to this question was, “Well, they’re founded by women.” And I thought that was awesome. But in all seriousness, here’s what it said:
- Women are subject to significantly more pushback when pitching their businesses and investors routinely presume that women founders don’t have basic technical knowledge. Therefore, they’re interrogated on such knowledge far more often than they do when interviewing male founders. So the theory is, the more pushback you receive from VCs, the more chances you have to distill your pitch, refine your business plan, and interrogate your weaknesses—all of which can lead to better outcomes once a business is up and running. When women are constantly bombarded with what they don’t know—or what investors think they don’t know—they’re given more opportunities to design around their alleged flaws.
- Male founders are more likely to overpitch and oversell, while women are more conservative in their business projections. The theory here is that more conservative business projections indicate a disposition toward making financially responsible decisions. By not overselling, female founders demonstrate both integrity (they’re willing to give investors a realistic picture of success) and logic-based thinking (data-backed projections lead to reliable returns).
- The vast majority of male investors (92% of partners at the biggest VC firms in the US are men) often have little to no familiarity with the products and services female entrepreneurs are pitching—especially in categories such as childcare or beauty. The interesting theory here is that the less male VCs know about a product being pitched by a woman, the better suited she is to establish herself as an expert. It’s noted that investing is all about being ahead of the curve, and if you pitch a business men haven’t heard of, you’re opening their eyes to markets—and money—they didn’t know they needed.
I love this quote, “since entering the workplace, women have defied expectations, often outperforming men by capitalizing on adaptations they’ve made in even the most toxic industries.” (hell yes!) What’s more, having been excluded from the internal networks, successful women often found strength in their external networks, an interesting and unsurprising homage to the power of a female-driven leadership community. Whether we’re illustrating female tenacity, resilience and adaptation within the VC investor community or other industry verticals, there’s no doubt to what female founders can achieve when they are motivated to succeed and make a difference. Cheers to that my friends, and cheers to the many male-driven companies and organizations that are supporting female entrepreneurship and helping to reimagine what founder diversity looks like!
If you would like to read more about the original article, you can visit it here.