When it Comes to Gender Equality, Venture Fund Management is the Last Domino to Fall

Congratulations to our colleagues at Women in VC for releasing their report on ‘The Untapped Potential of Women-Led Funds’.

Even after an encouraging decade of progress, a pervasive gender gap prevails for entrepreneurs seeking access to capital. One statistic paints a rather alarming picture of the problem; just 2.6% of total capital invested in 2019 went to female-only-founded companies. And the problem is not getting better, in fact it’s getting worse — the amount of venture funding invested in women-led companies just hit a 3-year quarterly low.

One thing we know for sure is that this is not a pipeline problem. It’s approximated that about 42% of venture-eligible startups are founded by women. But are they good enough to attract investment? Glad you asked. Female-founded companies are more likely to exit, and exit on average faster than the broader market. Even more incredible, companies with a female founder have been found to perform 63% better than all-male teams, deliver twice as much per dollar invested, and have a lower risk of failure. Amazing, right!?

Melissa Withers, cofounder of RevCapital, was quoted in an article by Pitchbook, “With women founders crushing it on every metric — except VC fundraising — it is clear that the industry’s refusal to support these women is based on an unwillingness to adopt new processes for sourcing, evaluating and selecting deals.”

Women in VC suggests the problem — and therefore solution — begins upstream, with a disconcerting lack of diversity in fund leadership. Their analysis showed just 5.6% of US VC firms are led by a female general partner, with just 33% of these being a woman of colour. Looking at how many of these are founding partners, the number drops by half, to only 2.4%.

In Canada, the story doesn’t look too different. Female Funders 2019 report showed just 13.5% of partners at Canadian venture funds are women, with only 8.9% being managing partners. As a result, they estimate that in 2018, of all dollars invested, only 10% went to women-led funds.

Perhaps women are just less suited to fund management? Not so fast. Goldman Sachs recently published a report that showed how this year, female-managed funds outperformed male counterpoints (even amidst the Coronavirus pandemic market swings). Another study in Harvard Business Review showed that VC firms that increased their number of female partners by 10%, saw a 1.5% increase in fund returns each year, and 9.7% more profitable exits. And yet another collaborative report from Pitchbook and All Raise recently showed that of all the US VC firms with top quartile results from 2009–2018, 69% had women in leadership positions.

If those aren’t compelling enough arguments for why LPs should be dropping everything to invest in female-led funds, recall the challenge female entrepreneurs face accessing capital. Female VC’s are twice as likely to invest in female founders, and 3–4 times more likely to invest in a female CEO. So not only do female-led funds perform better, but they are uniquely able to overcome biases and identify budding entrepreneurs who otherwise might have been passed over.

This economic argument for investing in female entrepreneurs is the very investment thesis StandUp Ventures was founded upon. The goal is to get a company from seed stage to Series A, propelling them to a place where bias can be (hopefully!) eliminated.

StandUp’s portfolio consists of enterprise software and health technology companies, each with at least one incredible female founder (sometimes two), in order to prove that investing in women is not just the best thing for equality — but an incredibly lucrative business decision.

According to research by Citywire, at the current rates of growth, it will take 200 years before gender diversity catches up for the world of venture capital management. I don’t know about you, but we aren’t interested in living in a world where gender parity is comparable to that of 1820.

…and we don’t at all mean to say male investors shouldn’t be included in the conversation. The investment team at Standup is made up of both women and men, by design! We appreciate and respect our male colleagues for their allyship and expertise, and know that diverse teams productively collaborating is where we will begin to see real change happen.

The message is crystal clear — investing in a women-led fund (such as StandUp Ventures) leads to the best outcomes for everyone. More equitable access to capital for female entrepreneurs means better returns for funds, LPs, and ultimately, the world.

- The StandUp Team