Women's start-ups more lucrative than men's

Start-ups owned by women generate more revenue even though they get less funding from investors, according to a new report from The Boston Consulting Group (BCG).

Why Women-Owned Startups are a Better Bet, written in partnership with US-based global network of start-up accelerators MassChallenge, looked at data on investment funding and revenue generated by 350 US-based start-ups over five years.

It found that:

• Women-founded and co-founded start-ups received on average US$935,000 in venture capital (VC) funding, less than half the US$2.12 million male-founded companies received.
• Despite the funding gap, women-owned companies generated 10% more in cumulative revenue over five years: US$730,000 compared to US$662,000.
• For every dollar of funding, women-founded start-ups returned 78 US cents, compared to just 31 US cents for those founded by men.
   

“Women-owned start-ups are more effective at generating revenue from each dollar of investment. Women are a better bet for financial backers,” said Jane Danziger, Partner and Managing Director in BCG’s Sydney office.

The BCG and MassChallenge analysis found the disparity in funding awarded is statistically significant and due to gender. The team interviewed founders, coaches and investors to understand the disparity, identifying three key themes:

• Women receive more challenges, particularly around technical know-how; women also tend to take feedback on board and push back less.
• Men are more likely to make bold projections in pitches while women are often more realistic and reserved, creating an uneven playing field when VCs want ‘the next big thing’.
• Male investors lack affinity with the products and services many female-founded businesses market to other women.
   

“While women are finally making it in the corporate world, it’s disappointing to see this disparity in the growing start-up space,” said Danziger.

“Often women have to prove their credentials or skills before they can really start promoting their ideas. And unfortunately, many men simply don’t understand and therefore see the potential in the ideas women pitch to them.”

The report also suggests steps for various stakeholders to help close this funding gap:

• VCs and investors: be aware of the biases, bring women into investment-making teams and understand the returns of investing in women to make more objective funding decisions.
• Start-up accelerators: seek a balanced slate of applicants, bring women into the coaching and expert cadre, help build networks and share the case for change.
• Women founders: avoid underselling ideas when pitching, seek VCs that invest in women and find and make use of supportive networks.
   

“The good news is Australian venture capital funds are moving in the right direction, particularly by encouraging both diverse investment panels and applicants,” said Danziger.

“There’s still a long way to go to, but the evidence is clear: investing in women pays off.”

Image credit: ©stock.adobe.com/au/metelsky25

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