Gender and Funding: Are Female Entrepreneurs Really Disadvantaged?

Let's talk for a moment about the female funding gap. This news story has been percolating in the entrepreneurship community for the past year or so, and if Huffington Post is writing about it, we view that as an indicator that this is major news y'all! (sorry, that's the Texas in me)

There are a lot of facts being thrown around, and since we love bulleted lists (seriously... LOVE), we thought we'd take a moment to figure out the facts:

  • According to the University of New Hampshire, and re-quoted by Forbes, only 12% of angels funded women in 2011. We assume this is what HuffPo referenced when they stated: women globally receive less than 12% of all venture capital invested
  • According to Women 2.0 and Stanford’s Clayman Institute for Gender Research reports that women-led businesses only get 4.2% of venture capitalist funding. Other reports cited by Women 2.0 claim that female entrepreneurs receive 7% of the funding.
  • MIT's own Innovation Initiative leader Fiona Murray conducted a video study and found companies pitched by men were about 40 percent more likely to receive funding than those led by women.

However, analysis would indicate VC's should be rushing to invest in female entrepreneurs!  A 2013 report from the Small Business Administration (SBA) had some interesting insights when they evaluated the impact of gender on fund performance. They conducted a multi-factor study of over 2,500 VC firms and their portfolio of investments and found:

  • Investment in women led businesses has a positive impact on a VC's portfolio and results and actually improved performance. The study did not determine if that was due to 'more vigorous due diligence' or the fact that VC's who tended to invest in women tended to also have women on their management teams.
  • One really interesting statistic that stuck out: Firms that initially invested in women have higher subsequent investments in women led enterprises, AND, VC firms who invested in women had a higher rate of success than those who did not.

So what's going on here? Do VC's just not like the ladies? Well- we think there are a few factors at play:

1. Gender of Investors: Part of the problem is the broader VC industry and the gender gap in funders. The majority (90% according to some reports) of VC's are male, and the majority of funding comes from men. Social identification and selection bias enters into the picture, making it difficult to separate correlation from causality when trying to understand the funding environment for women. Add the concept of social capital and the fact that business networks are still heavily gender driven, and it all starts to make sense. Women just don't have as much social capital in the majority of cases, and have been less focused on networking and building that connection with potential investors, either due to different sets of opportunities or a lack of awareness.

2. Women Led Startups have a Different Value Proposition: There are less women in STEM fields, and research is only so telling as it an earlier time period when fewer women were employed in tech and other fields that are likely to spawn the high value, market disrupting technologies VC firms want to invest in. Economics y'all. This isn't to say that there aren't tons of amazing and super-smart women starting tech companies. MIT's own Vanessa Green of FinSix (who raised a $500K Kickstarter) or Leslie Dewan of Transatomic Power are living proof, but in our view, still a minority when it comes to the boys. Not only are women getting smarter about the industries they pursue innovation in, they are also getting savvy to the game of knowing the right growth rates and exit strategies to pitch to investors. A fashion startup aiming for $100,000 in revenues in Year 3 is just not an appealing investment for a VC firm when compared with an ecommerce technology platform aiming for $250M in revenues in Year 3.

3. Funding Preferences: According to Kay Koplovitz, chair of Springboard Enterprises, women prefer to self-fund their startups using their own cash, family and friends, or emerging sources like angel funding and crowd funding. We'll be talking about this in our 'Brave New World' panel at the conference, and hope to have a bad-ass female entrepreneur talk about funding preferences. Funding through these alternative sources allows more control and also, lets you keep a larger share of the company! Perhaps its also a question of industry and product fit, but the emergence of female entrepreneur focused angel groups like Astia or crowd funding platform Plum Alley are showing that leaving women out of the VC game has allowed other investors to get in and build a strong niche brand.

So what happens now?

We are lucky to be part of a generation that is experiencing a great gender equalization (to some extent). In recent years, there have been some incredible efforts to educate and empower women in STEM fields including organizations like WomenWhoCode, whose founder Alaina Percival will be speaking at our conference in December.

On the funding side, the gauntlet is also being 'thrown.' Google recently issued a funded challenge to accelerators, incubators, and others to increase women's participation by 25% in 2014. Paul Graham's Y Combinator recently held a female founders conference. And another Silicon Valley based incubator, 500 Startups, announced their intention to pump $1M into 10 companies with women founders already in their portfolio.

There are a lot of bright spots that give us hope that the female funding gap will begin to equalize. At this year's VC conference, we are pushing ourselves to find and engage with bright, dynamic women who are changing the game and makin' it rain (so to speak). Last year, we had one panel with women on it, specifically called the Women in VC panel. If you look around at other schools who host similar conferences, you'll see rosters of all male speakers. One un-named conference this past spring had 56 male speakers and only 3 females. This is mind-blowing. This year, we will have multiple women on multiple panels, and for the first time in our history, a female keynote speaker (perhaps multiple). We strongly feel that it is our duty to ensure we bring perspective and diversity to the table, and this year, the gauntlet has been thrown not only for our conference, but all MBA conferences. Bring on the women! Pretty bad-ass if you ask me...

Join the conversation, either at the conference, on our blog, or @mitvcconference

- Meltem Demirors