A new study by Boston Consulting Group shows once again that female entrepreneurs know how to make a little investment go a long way.
The BCG study, titled ‘Why Women-Owned Startups Are a Better Bet’, draws on information provided by MassChallenge, which is a US-based global network of accelerators that offers startup businesses access to mentors, industry experts, and other resources. The study reviews five years of investment and revenue data from 350 companies that have been involved in MassChallenge associated accelerators.
The study’s headline finding is that women-led startups dramatically outperform male-led ones when it comes to return on investment: “For every dollar of funding, these startups generated 78 cents, while male-founded startups generated less than half that—just 31 cents.”
“In terms of how effectively companies turn a dollar of investment into a dollar of revenue, startups founded and cofounded by women are significantly better financial investments,” the report says.
The study’s other significant findings are that:
- Companies founded or co-founded by women attracted an average of $935,000, while companies founded by male entrepreneurs attracted an average investment of $2.1 million.
- Despite this funding gap, the women-led startups performed better over time, generating 10% more in cumulative revenue over a five-year period: $730,000 compared with $662,000.
While women-led businesses might be producing ROI, there is still a significant lag when it comes to accessing funding and finance. The BCG study notes that the funding shortfall for women is “disappointing, although not surprising.”
“According to PitchBook Data, since the beginning of 2016, companies with women founders have received only 4.4% of venture capital (VC) deals, and those companies have garnered only about 2% of all capital invested,” the report says.
As part of the study, BCG also spoke to female founders, business mentors and investors about their funding experiences.
Three central themes emerged from these conversations:
- Women were asked far more questions and challenged more often than male founders on the technical details of their proposal and their knowledge and expertise was often underestimated.
- Men generally pitched a bigger story, with bolder projections than women.
- Male investors shy away from pitches for products and services in what are perceived to be female sectors, for example, beauty and fashion.
The study’s authors point out the situation is not ideal for women looking to get funded, but smart investors have an open field of opportunities:
Most important, investors should understand that current market forces make women-owned companies very promising opportunities. The lack of funding means that there is less competition for women-backed companies, and those companies, on average, perform better than those with all-male founders.
The simple fact is that investors willing to put aside their preconceived notions and biases could do very well from investing in female-founded and led businesses. Investors who have been smart enough to get on board with the rising tide of female entrepreneurs the world over are set to reap a bonanza.
So what are you waiting for?