The Future is Female-Funded: The Revolution of Venture Capital and Startup Decision-Making

Two weeks ago, we gave you four statements and asked you which of them you thought were false. Drumroll, it’s time for the results!??

27% of you thought no way a pink disposable glove for the sole purpose of taking out tampons was funded $32,000.

Unfortunately, this is true!?

On a German TV show in 2021, the "Pinky Glove'' received funding for a product that was absolutely redundant. It is a reality that sometimes entrepreneurs attempt to solve problems that don't exist, but this example emphasizes that the male segment of society is not always best suited to make decisions about solving problems (like women’s health) that they don’t even face! Moreover, if 50% of the global population is women and they drive up to 80% of all consumer spending, shouldn’t they have some power to decide what type of products receive funding?

With only 12.4% of investment professionals in venture capital (VC) firms in Asia and 2.4% of all global VC partners being women, we’re far from the representation required to avoid another “Pinky Glove'' fiasco. However, representation for representation’s sake is not my intention. Stay with me. Women with strategic decision-making power in VC and startups’ cap tables are actually beneficial to the industry as well as the startup because they bring unique insights, perspectives, and networks.??

Before we dive into the benefits of having female decision-makers in VC, let me disclose the truth about the second statement.

It is in fact correct that on average, women raise less than half as much money as their male counterparts, and they earn 78 cents per dollar invested, compared with 31 cents for men.

Sorry folks (all 27% of you)!?

According to a 2020 survey by UBS, Fortune 1000 companies that were under the leadership of female CEOs, experienced considerably greater returns compared to the S&P 500 during the period from 2002 to 2014. However, my point is not that women make more money than men. I bring this up because female fund managers are more likely to invest in such companies that have more diverse boards and management teams. Therefore, with less women in VC decision-making, there are less investments into diverse startups, which results in the industry missing out on significant returns! Additionally, based on a Cerulli Associates survey in 2022, roughly 52% of women prefer investing in startups with positive social or environmental influence. Consequently, approximately 74% of funds with a sustainable focus ranked in the top half of their investment categories from 2017 to 2022. However, if the investor landscape continues to stay homogenous (in other words, male-dominated), the capital allocation will also remain concentrated and risk missing out on such value in the ecosystem.?

"Fresh perspectives make such a difference in the startup world, and historically female investors have had a hard time making their voices heard. We're finally seeing that change, and some of the best investors I've talked to and worked with are female,” - Saif Farooqui , Founder & CEO Corgi Labs

Even from the startup perspective, there is value in having women on the cap table as investors. Carmina Bayombong , Founder and CEO of InvestEd mentioned, "From my experience, my female investors brought in a different approach and perspective in helping me succeed as a portfolio company. What I found the most helpful is that they are able to mix business and strategic advice with managing the life stages I am navigating as a woman.” Moreover, founders also value the expertise female investors bring to the table to support a product that represents and serves the needs of all according to Dorka Horváth, PhD , Founder and CEO of BOOKR Kids .

However, the solution here is not as simple as just more women becoming GPs and angel investors. The problem is more systematic than that.

32% of you said that, “Women-led firms whose first round of VC funding is raised exclusively from female VC partners are two times less likely than those whose first round included male partners to eventually raise a second round,” is false.

And I really wish it was. But it isn’t.?

Two INSEAD researchers conducted a field study examining data from Crunchbase on start-ups that received a first round of VC funding between 2010 and 2018 and found that female-founded start-ups who had received early-stage funding from female-led VCs were two times less likely to raise additional financing. Why did this happen? To find out, they conducted an experiment with more than 200 MBA students to watch and evaluate identical pitches of a fictional startup by either “Laura” or “David.” Half the participants were told that the startup was funded by “John,” while the other half were told the funding had come from “Katherine.” When the pitch was narrated by Laura and her funding came from John, she was rated just as highly as David was. But when Laura’s funding came from Katherine, both male and female participants evaluated the pitch less favourably, and rated Laura as less competent.

This is because of an effect called attribution bias (the tendency to assume that someone’s identity or character, rather than outside factors, are responsible for the situation they’re in). When people see that a female founder has a female investor, they attribute her success to her gender rather than her competence. As a result, new potential investors assume that a female founder is less competent if they see that she has only been backed by female investors, irrespective of her actual qualifications.

So, what can be done?

Women are expected to control about US$30 trillion in wealth within this decade and with the right resources and access, they have the potential to pay this wealth forward to revolutionise the VC and startup ecosystem. Ladies, join us at Epic Angels to get a say in the decisions that shape the next generation of startups and help unlock value in the industry while driving returns! If you’re a startup looking for funding, pitch to us and diversify your cap table to ensure that you have a vast set of perspectives to shape the success of all your hard work. Finally, if you’re a VC or another angel network, let’s chat and work together to evaluate investment opportunities in a holistic way to ensure that business metrics rather than implicit biases guide early-stage funding decisions.

Oh and lastly (don’t worry we didn’t forget), the 14% of you who said, “In 2021, only about 20% of decision makers at VC firms were women, and 50% of firms did not have a single female partner,” was false, guessed right!

Sadly, only 12% of decision makers at VC firms were women and over 65% did not have a single female partner.

So it’s time to get to work. Chop chop!