Research shows that women-led startups outperform those led by men in almost all areas. So why are investors so reluctant to back them?
The gender pay gap is well documented. But less well-known is the investment gap between female-led and male-led companies. According to a study, women business owners receive significantly less early-stage capital than men. Yet, businesses founded by women deliver much higher revenue—more than twice as much per dollar invested—than those founded by men.
In fact, women-led startups outperform those led by men in nearly all areas – they are quicker to adapt, more solutions-focused, more profitable, safer, provide higher-quality customer experience, and are more socially responsible. They are also more likely to focus on purpose. Yet the culture of venture capital firms (VCs) may be preventing women-led businesses from getting the funding they deserve.
When Harvard Business Review conducted an observational study into interactions between VCs and entrepreneurs, they found that male founders tended to be asked questions about the potential for gain, while female founders were asked about ‘prevention’, or the potential for loss. The difference in questioning led to a huge disparity in funding, as the study authors write, “For every additional prevention question asked of an entrepreneur, the startup raised a staggering $3.8 million less, on average”.
While distressingly familiar, this issue does have solutions – starting with much greater VC investment in women-led companies, and more programmes like the U.S. Federal Government’s $52 million Boosting Female Founders initiative. That programme provides grants of up to $400,000 to startups that are majority-owned and led by women.
Perhaps most encouragingly is the reality that, despite the additional challenges they face, women-led startups continue to thrive and grow, accounting for more than $1.8 trillion in profit each year.
These startups include companies like Nigeria’s MedSaf, founded to tackle the proliferation of deadly fake medicines in Nigeria and elsewhere.
Founder Vivian Nwakah was inspired to start the company after a friend died from taking a fake malaria pill. MedSaf is a platform for financing and facilitating the effective and safe movement of medicinal drugs through Africa, incorporating a vetting process for drug suppliers and manufacturers that guarantees safety. The company passes the wholesale prices it negotiates on to consumers. MedSaf also illustrates the way that female-led companies are focused on a mission – often one that aims to improve life for the most vulnerable.
Healthtech start-up Pollie is another example of a company on a mission. It aims to improve the health journey for women experiencing conditions involving hormonal imbalance, such as polycystic ovarian syndrome, endometriosis, and hypothalamic amenorrhea – conditions for which women often have a hard time finding treatment. Founded in 2020 by Jane Sagui and Sabrina Mason, the company has developed a virtual platform that provides individuals with a personalised programme that includes a dedicated care team of doctors, life coaches, and dietitians, alongside a variety of lab options and educational content.
Bloomer Tech was inspired by 19th century women’s rights activist Amelia Bloomer, creator of the bloomer – a replacement for the restricting fashions of the day. In 2020, the company raised $3 million in a seed round for its smart, connected clothing.
The company uses washable, embedded flexible circuits to turn bras into electrocardiograms—providing real time data to tackle heart disease—the leading cause of death among women. The company’s founders were inspired by women’s lack of representation in clinical research – especially for cardiovascular diseases.
“As women in STEM, we are keenly aware that digital health and AI tools are tuned to the people who are represented in the datasets. So, when we realised that women have been woefully underrepresented in clinical research especially in cardiovascular diseases, we had to take action,” said Alicia Chong, CEO of Bloomer. The company is working to prevent research bias and unlock new, sex-specific digital biomarkers that can provide personalised care for patients.
Not all women-led innovators are focused on products that primarily benefit women. But even when catering for a broader market, many are still prioritising other businesses owned by women. Food startup Akua, led by co-founder, CEO and CMO Courtney Boyd Myers, has developed burgers made from kelp. The burgers use only a small amount of energy-intensive land-based plants and rely mostly on the kelp to lend a meaty flavour and texture. Akua sources their seagreens from a network of largely women-owned regenerative ocean farms along the Northeast coast of the USA. The company recently raised $3.2 million in a seed round led by Vibrant Ventures.
These companies are just the tip of the iceberg. As they grow more numerous—and more successful—perhaps more VCs will get the message.
Did you enjoy this article? For more insights from the Springwise team and our network of global innovators, sign up to our newsletters here.
For further insight into innovation and gender equality, read our Sustainable Source article on UN Sustainable Development Goal 5.
Words: Lisa Magloff
9th March 2022