Data Reveals VC Firms That Include Women Decision-Makers See Higher Levels of Success

According to the 'Women and Public Policy Program at the Harvard Kennedy School' (WAPPP), nearly three-quarters of U.S. venture capital (VC) firms lack women in decision-making roles, which might help explain why only about 13 percent of VC seed money ends up in the hands of startups where women are included in the founding team. This is not a new phenomenon. WAPPP found that, over a 30-year average, the share of VC funding that has gone to female founders is about 2.4 percent, which is virtually unchanged from the 2.3 percent share as of 2018.

When it comes to securing funding, women founders in the U.S. appear to have the deck stacked against them. The result, WAPPP concluded, is that there are “major disparities in the tech sector and beyond” because “venture capitalists play a critical gatekeeping role in deciding whose ideas, products, and innovations get a chance to shape our modern economy and society.”

Additionally, WAPPP found that female founders receive about one-quarter of the amount of funding they request, while their male counterparts receive about half. Only about 6 percent of VC funding goes towards all-female founding teams or solo female founders while about 15 percent goes towards mixed-gender founding teams.

Not only do these findings suggest there is a deep-seated gender bias when it comes to venture capital investments, but they also point to missed investment opportunities as a result of that bias. Despite a less-than-level playing field, WAPPP found that VC firms with 10 percent more female investing partners “make more successful investments at the portfolio-company level, have 1.5 percent higher fund returns, and see 9.7 percent more profitable exits.”

Investment Returns

In other words, failing to consult women when it comes to investment decisions, not only erodes diversity, it also cuts into investment returns. Among the solutions, WAPPP suggests include creating standardized pitch sessions and evaluating pitch decks “blindly” on their merit. Another solution that may be worth considering would be to invite women to invest in “female-only” funds where women primarily contribute money in funds that would then be used nearly exclusively to support women-owned startups and businesses.

This makes even more sense when one considers the formidable investment force women are becoming.

According to McKinsey & Company by 2030, American women will manage a significant slice of the $30 trillion in financial assets baby boomers are expected to control. Fortune meanwhile, estimates that women will inherit approximately $80 trillion in the coming decades due to intergenerational wealth transfer. And women are putting this money to work: According to one source, 60% of women currently invest in the stock market. As a result, financial services organizations are increasingly tailoring their products and services specifically to meet the needs and preferences of women.

For one, women investors tend to prioritize ESG (Environmental, Social, and Governance) and impact investing. One investment firm found that, compared to men, women are far more likely to make ESG investing a priority. Also worth noting: when it comes to investing, women have demonstrated a pretty good track record. In 2021, Fidelity analyzed investment returns for more than 5 million of its customers over ten years and found that, on average, women not only realized positive returns during that time but outperformed their male counterparts by 40 basis points. Imagine if women collectively put their investment acumen to work exclusively supporting women-owned startups and businesses.

And there is no shortage of women-owned businesses to support. The World Bank reports that women-owned firms are growing at more than double the rate of all other firms. Additionally, women-owned businesses contribute almost $3 trillion to the economy and are responsible for 23 million jobs.

There is growing interest in investing in and supporting women-owned businesses, not just because doing so promotes gender diversity. As the Harvard Kennedy School’s Women and Public Policy Program data shows, doing so can drive above-average returns.