A Babson College study alleges a gender gap exists in venture capital (VC) funding for women. But considering Babson is a private business school, but it’s disappointing the research appears to be incomplete.
There might be gender bias, but the study doesn’t appear to make such a case.
The study entitled, “Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital,” looks at U.S. VC funding for women. (To see the executive summary: http://bab.sn/a9nrza.)
Let’s consider why the study seems to fall short of the mark.
For instance, it’s well-known that women receive less angel funding than men, but it isn’t because of a male-oriented bias.
In the article, Why Women Receive Less Angel Funding Than Men, I cited a study that explained why female-led firms are unsuccessful in capturing angel funds.
Fewer women than men actually apply for angel funds.
For those who do apply, the study’s author reminds us that investors aren’t interested in backing small retail-type micro-businesses.
That’s the ostensible problem with the Babson study. Perhaps I missed it, but the Babson press release and executive summary didn’t address critical information.
Consider these questions:
- How many women actually sought VC funding?
- Did their proposed business models indicate enough sustainability to warrant VC backing?
- Were their applications well-presented?
These are three critical factors.
Readily, I agree women make great CEOs. As I wrote in Why California Corporations Make More Money with a Woman’s Touch, many California business women in corporate leadership positions certainly know how to make money.
Among the state’s top 400 public companies, 44 businesses have women as executives and board members. Thirty-four or 75 percent of the women-led businesses earn three times more revenue and 50 percent more profit than companies with less diversified leadership.
But I remain unconvinced by the Babson study’s conclusions.
“For years, it was believed that women entrepreneurs needed to change their approach to networking, pitching or industry sector in order to secure venture capital,” commented co-authoring Professor Patricia G. Greene. “It is increasingly apparent that many women entrepreneurs have followed these prescriptions, yet they have not been able to achieve proportionate increases in early-stage growth capital.”
Unfortunately, there might be gender bias in VC funding for women, but Professor Greene and her co-authors fail to prove it.
Hence, they provide a questionable set of conclusions.
“The tremendous work within the entrepreneurship ecosystem to support and foster growth of women entrepreneurs, and the findings of this study, demonstrate it is not the women who need fixing; the model for venture capital that has been in place since the 1980s simply does not work for women entrepreneurs,” she wrote.
Nevertheless, the study does provide some valid conclusions:
Since 1999, women entrepreneurs have made considerable progress in obtaining venture capital, however, a wide gender gap persists.
The amount of early-stage investment in companies with a woman on the executive team has tripled to 15 percent from 5 percent in the last 15 years. Despite this positive trend, 85 percent of all venture capital–funded businesses have no women on the executive team. Importantly, only 2.7 percent of venture capital-funded companies had a woman CEO.
Businesses with women entrepreneurs perform as well as or better than those led by men.
Businesses with a woman on the executive team are more likely to have higher valuations at both first and last funding (64 percent higher and 49 percent higher, respectively).
The composition of venture capital firms matters for women entrepreneurs.
Venture capital firms with women partners are more than twice as likely to invest in companies with a woman on the executive team (34 percent of firms with a woman partner compared to 13 percent of firms without a woman partner) and more than three times as likely to invest in companies with women CEOs (58 percent of firms with women partners versus 15 percent of firms without women partners).
There is a declining number of women decision-makers in the venture capital community.
The total number of women partners in venture capital firms has declined significantly since 1999, dropping to 6 percent from 10 percent.
In conclusion, I suspect there might be gender bias in VC funding for women, but three questions must be answered fully before arriving at such a conclusion.
After all, with all other things being equal, a serious venture capitalist simply wants to make money.
From the Coach’s Corner, here are related solutions:
What Should You Divulge When Asking for Investment Capital? — If your startup is the next big thing, but you want venture capital, you can start smiling. Yes, financing has been difficult to obtain in recent years. But entrepreneurs wanting venture capital have reasons for at least a small celebration – the money is starting to flow again after the Great Recession took its toll.
What No One Tells You about Raising Investment Capital — Investment capital is available during all economic cycles, according to leading consultant Joey Tamer. Ms. Tamer has proven approaches for raising money. “In good times, risk capital is available from all sources, and they compete and sometimes share hot deals with each other; the practice is termed syndication,” said Ms. Tamer.
How Twitter Levels the Playing Field for Small Cap Companies — Good news for venture capitalists and entrepreneurs who are known to kvetch that that their companies fall below the radar screen of Wall Street analysts and the media. It’s widely known that mainstream media coverage seems to favor large companies over small ones. But an academic study shows that Twitter can help such small cap companies gain market liquidity.
To Finance Your Startup, How Bloggers Can Impact Your Quest for Venture Capital — Multi-million dollar venture-capital financing decisions are affected by bloggers and social media. That’s the conclusion from an academic study, “Putting Money Where The Mouths Are: The Relation Between Venture Financing and Electronic Word-of-Mouth.”
Best Practices for New Women Entrepreneurs to Stay Focused — The keys for business women are to plan well, create the right balance, persevere and have the right support system. It isn’t commonly known, but women entrepreneurs inherently have stronger skills than men in key areas. Women are more organized than men in financial and other administrative matters, said a longtime business associate in Washington.
“The vision must be followed by the venture. It is not enough to stare up the steps – we must step up the stairs.”