Women and Venture Capital

Of the numerous venture capital (VC) firms in the United States, only about 8 percent of them have female partners, and that may be hurting the overall performance of their portfolios. Having no female partners at VC firms, evidence suggests, may lead these firms to invest less in women-led or founded companies. However, what the VC world may be missing out on is a potential source of innovation: female-led VC firms can bring greater returns.

According to research done by First Round Capital, the company has experienced success by funding more women entrepreneurs than other firms. A review of its holdings shows that companies founded by women outperformed those led by men by 63 percent. Businesses with women at the top received a significantly lower portion of venture dollars.

Sara Brand, a founding partner at True Wealth Ventures, a venture capital fund that invests in women-led businesses, believes that including more women is an opportunity for investors looking to maximise their inputs. VC firms that have women as partners are more likely to invest in companies that have a female presence on the management team. But with women making up only slightly more than 10 percent of decision-makers, it's not surprising that female entrepreneurs are losing out on funding.

As female entrepreneurs struggle with less access to capital for their ideas, it's a wakeup call to venture capitalists and investors. Around the world, investors such as Henner Diekmann, a partner at law firm Diekmann Associates that deals with foreign direct investment in Southern Africa, are looking for opportunities to grow.

Doing More with Less

A study undertaken in 2016 called the Global Entrepreneurship Monitor found that women-led start-ups required, on average, around $10,000 to get going. Further, many female participants in the study said that it would take just half of that amount to get underway, with many looking to family and friends as their source of funding.

Why women need so much less to engage in entrepreneurial ideas could be the fact that women are believed to be efficient spenders, choosing to use funds more wisely since they have less.

Limited Funding

In various cases, having less to begin a business with comes from necessity. It's no secret that women find it harder to obtain capital for their ideas than their male counterparts. According to research by the Small Business Association, many VC firms tend to play it safe when it comes to investing, choosing to go with informal social networks. And since many of these firms are male-dominated, these men tend to fund social networks which happened to be filled with, you guessed it, men.

The solution, in the venture capital world, could lie in having a female presence at the executive level of VC firms. Having a female partner in a VC firm increases the likelihood of investing in a business with a woman on the leadership team, and this also extends to hiring women CEOs.

Time for Change?

That a woman can be just as successful and dominate an industry is not in doubt anymore. There are numerous examples of thriving female entrepreneurs. There's BBG Ventures, co-founded by Nisha Dua, which supports female-led companies and has more than 40 companies in its portfolio with an enterprise value north of $1 billion. Start-ups such as SunRun and Houzz have women at the top, and they've reached unicorn status (a start-up company with a value of more than $1 billion).

There remains a lot to be done, but of utmost importance is getting successful women in positions to support those who are working hard to break through. Not only is having female leaders investing in women-led start-ups important in increasing funding, but it also enables the creation of mentors and role models.