The economic impact of the pandemic has amplified existing inequalities, which may be felt for years to come, and, entrepreneurship is no exception. A stark gap continues to exist between access to capital for female founders and their male counterparts. Despite multitudes of data highlighting the benefits of investing in female founders, in the seed stage and beyond, female-founded companies continue to be underfunded. Crunchbase reported that in 2010, only 3% of invested dollars went to female founders and in 2019, almost 10 years later, that number remained the same.
Can Venture Capital (VC) firms help close this gap? At Satgana, we believe this highlights an urgent opportunity for VC firms to not only be aware of their impact within the startup ecosystem, but to be more intentional about how they support female founders, increase the pipeline of female-founded companies, and uncover opportunities to drive systematic change.
A recent study by Boston Consulting Group revealed that for every $1 of investment raised, women-owned startups generated $0.78 in revenue, compared to $0.31 for male-run businesses. Despite their outperformance, challenges remain, with funding the number one barrier for female entrepreneurs at every stage of their journey. According to The Rose Review of Female Entrepreneurship, on average, women launch businesses with 53% less capital than men. This severely limits female founders and their ability to scale up.
The contribution women could make in business is substantial if more capital was invested and the barriers for female founders removed. McKinsey reported that companies in the top quartile for gender diversity on executive teams were 25% more likely to have an above-average profitability than companies in the fourth quartile — up from 15% in 2014. VC funds are losing out on an opportunity to the detriment of the entire entrepreneurship ecosystem and the economy at large. If we want a robust and inclusive recovery, the economy has to include access to funding for innovative, women-led companies.
While funding for female founders has made little progress over the years, the business case for gender lens investing is stronger than ever. Gender lens investing refers to the actions and processes that investors develop to intentionally invest in businesses and/or solutions that:
The business case for gender lens investing, particularly its critical role as a driver of growth and innovation, has strengthened. A growing body of research shows how greater gender diversity in companies leads to long-term value creation, stability, and even greater returns.
Gender equality is at the heart of the UN Sustainable Development Goals (SDGs). While SDG 5 is specifically focused on gender equality and the empowerment of all women and girls, it i’s even more important to recognize that we cannot achieve the remaining 16 goals if we do not ensure women have equal access to education, health care, decent work, and representation in political and economic decision-making processes.
Recently, our team had the privilege of attending the Gender Smart Investing Summit. For many, gender lens investing is a new field, but there is already a lot of great work and experience to share. The summit showcased this with powerful examples from across the investment ecosystem, and how these global players are using their voices to highlight the important role a combined gender and climate lens can play in delivering a just, green economy transition. The objective, as with our thesis at Satgana, is to inspire the adoption of this approach across the financial system.
With VC crucial to catalyze business growth, the funding model needs to change. Investing with a gender lens will proactively and intentionally ensure that we help to build more gender equity into portfolios and will positively impact climate change solutions, and our ability to recover better from the COVID-19 pandemic. At Satgana, we have aligned our mission toward gender lens investments, and promoting gender diversity within our own workforce and leadership