According to a new publication by The Boston Consulting Group (BCG) and MassChallenge, a global network of startup accelerators, women-owned companies receive far less in startup financing than companies founded by men. Yet startups founded and cofounded by women actually perform better in terms of the revenue they generate.
An article that describes the research, “Why Women-Owned Startups Are a Better Bet,” is being published today. The researchers analyzed data from 350 alumni companies that had taken part in the MassChallenge program. (MassChallenge provides programming, support, and mentorship for early-stage companies, and its strong programs are designed to support women entrepreneurs.)
The research revealed that the average startup that had been founded or cofounded by women received $935,000, or less than half the $2.12 million that the male-founded companies had received. Despite that funding gap, the women-owned companies had generated more in revenue over a five-year period: $730,000 compared with $662,000.
For every dollar of funding, the women-owned startups had generated 78 cents in revenue, while those founded by men had generated less than half that amount—just 31 cents. In this sample, if investors had put the same amount of capital into the startups that were founded or cofounded by women as they had into those founded by men, an additional $85 million would have been generated over the five-year period studied.
“It’s disappointing but not surprising that women get less in startup capital than men,” said Katie Abouzahr, a global research fellow in Women@BCG and a coauthor of the study. “Women-owned companies receive only a small slice of total venture capital funding. But what is surprising is how much more effective women-owned businesses are at turning a dollar of funding into a dollar of revenue: they generate better returns and are ultimately a better bet.”
Gender Biases in Pitching and Business Plans
In addition to the quantitative analysis, the authors interviewed company founders, mentors, and investors to identify underlying causes of the investment gap. That research revealed that women business founders are subject to more pushback during pitch presentations than men, particularly on technical aspects of their ventures. Women are more likely to make realistic or even conservative assumptions in their business plans than men, who tend to make bold projections.
“That bolder approach can get rewarded because of the mindset of some VC investors to ‘swing for the fences,’” said Matt Krentz, a BCG senior partner and another coauthor of the publication. “Firms make the majority of their returns from a small number of highly successful deals. So they’re predisposed to look for big, bold numbers in business plans.”
The article includes recommendations for actions that three stakeholder groups can take to close the investment gap, “As our study and other recent findings show, the industry needs to change: investors need to make their funding decisions more objectively, and accelerators need to support women-founded startups with better mentorship and resources while advocating for longer-term change across their networks,” said John Harthorne, founder and CEO of MassChallenge and another coauthor of the study. “We hope that women founders can use these findings to operate more effectively in the short term within this flawed environment, while we work together to address these systemic issues.”
The investment gap is real, and it will take deliberate action by all groups to help close it. The measures recommended in this report represent an important starting point—one that is long overdue.