Women Founded Start-Ups Receive Less Funding But Produce Double The Revenue, A Study Finds

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A recent study by Boston Consulting Group (BCG) and in collaboration with Mass Challenge, a US-based network of accelerators, found that when women go for funding rounds, they received less funding, but produce more revenue per dollar funded.  The study was carried out over a five-year span of investment and revenue data, for 350 companies that were part of the MassChallenge accelerator program. Although the disparity in funding received averaged about 1 million USD less for women funded or co-funded start-ups, per dollar of funding the women-led startups generated 78 cents, while male-founded startups generated 31 cents.  Although revenue on its own is not a predictor of a high VC valuation or a high exit, it is a metric used in valuing the company and a metric that has more weight in some industries than others. 

The lead author of the study, Katie Abouzahr, a principal in BCG, explains that the aim of the study was to bring awareness, as well as show concrete data around the funding disparity. She said: “Women-owned companies only receive a small slice of total venture capital funding. But what is surprising is how much more effective women-owned businesses are at turning a dollar of funding into a dollar of revenue – they generate better returns, and are ultimately a better bet.  We hope that this research forms part of the case for change.”

The authors made sure that the results were statistically significant and in fact due to gender, and not to other factors. To do so, they ran a regression analysis on data that was anonymous, first without control and second and third time controlling for factors such as education and quality of the pitch, as evaluated by judges. They state that “the results showed that the disparities in external funding awarded to startups were statistically significant and that the disparities were due to gender.”

The results of the data are illuminating, so I think the next logical question comes -  how can we as a society solve this disparity? I believe that diversity is key, and in fact, diversity is supported by science, it is what gives to our planet life and function. We are interdependent on each other, and the more of each other that we bring in, the better. In fact, diverse companies produce 19% more revenue. Additionally, apart from the societal benefits of having more women involved in all areas of our economy,  having more women participate in areas that drive economic growth, will only help our country and lead to prosperity.

The authors give advice to all participants. They suggest that women who are pitching the ideas, should be bolder and ask for bigger investments, as well as look for VCs that have a track record investing in women. These VCs usually have women partners or specific funds that are dedicated to women.

The study suggests that VCs bring in more women in the leadership team, to increase diversity and ultimately increase the bottom line. While currently there are only 8% of women VC partners, women drive 85% of consumer purchases, therefore constituting an important market segment to focus on. Thus, when women are in the decision-making positions in VC firms this correlates to a financial benefit for the VC firm as well as the whole start-up ecosystem.