Startup Investment: A Male Dominated World
Women led businesses only receive between 5 and 10 percent of all the venture capital investment in start-ups, as Harvard Business School research shows male-led pitch presentations are twice as successful as female counterparts.
The Investment Community Still Prefers Males
Women-led technology companies get a 35% higher return on investment, 34% better total return to shareholders, and yield 12% higher revenue. But the number of technology companies founded by women is just 3%, and women-led businesses only receive between 5 and 10 percent of all the venture capital invested in start-ups. Now a new observational study conducted by Harvard Business School, designed to test the hypotheses that women get less funding because society subconsciously thinks women are worse investments, confirms that the investment community continues to prefer male entrepreneurs.
The study took real startup pitches from real companies which they then presented to investors in four different ways – a male voice accompanied by a photo of an attractive and then less attractive male, and a female voice accompanied by a photo of an attractive and then less attractive female – to observe the effects of gender and attractiveness. The investors of both genders were then asked to decide whether the pitch was effective and whether they would want to invest.
68% of the time investors of both genders chose businesses presented by males; only 31.7% of investors chose female-presented pitches. The team also discovered that the attractive male fared best, whilst attractive women fared worst.
Explaining the gender-gap in startup investment
There are several key theories that are put forward to explain this gender-gap in startup investment.
Often it is claimed that there aren’t enough women entrepreneurs or there are fewer women asking for funding. But as evidence shows women are starting new companies at a rate 1.5 times higher than the national average this argument cannot account for the extent of the gender bias we see.
Another theory holds that women are presenting ideas with less potential for high growth and high success. Typically women start businesses in retail and service which offer lower initial growth rates which don’t offer the same attraction to investors seeking fast returns.
And the Kauffman Foundation, in a recently published research paper into the role of women in the investment world, suggest that more female investors would lead to more investment in women-led startups. Currently 90% of investors are men, meaning the dominant voices in venture capital decisions are male. And these male decision-makers perhaps hold a tendency to invest in businesses they can relate, being a male entrepreneur that the male investor both understands and recognises himself in.
However the Harvard study revealed that investors of both genders preferred the male led pitch presentations. So whilst certainly more female VCs will have an impact on changing the face off startup investment, it seems our stereotypes of the successful CEO and our deeply ingrained ideas that men are better entrepreneurs still holds fast.
The Future of Female Led Startups
But it’s not all bad news for female led startups. Recent years have seen rising numbers of female angel investors which female entrepreneurs have a tendency to gravitate towards. Tech giants are also getting on board as Google recently issued a funded challenge to accelerators and incubators to increase women’s participation by 25% in 2014 and a Silicon Valley based incubator has announced their intention to pump $1 million into 10 companies with women founders already in their portfolio, as just two examples.
And as women claim a dominant share of consumer spending and make up the largest numbers online and on social media – controlling 70% of online spending worldwide – there is a pressing need for businesses to cater to women. By the end of 2014 is it predicted that women will purchase $15 trillion worth of goods, and so perhaps then women will start to dictate the game.