The Value of Investing in Female Founders

&l;p&g;&l;img class=&q;size-large wp-image-1112&q; src=&q;http://blogs-images.forbes.com/falonfatemi/files/2019/03/AdobeStock_200816096-1200×801.jpg?width=960&q; alt=&q;&q; data-height=&q;801&q; data-width=&q;1200&q;&g; FemaleFounders

&l;span style=&q;font-weight: 400&q;&g;The data is all too real and familiar. When it comes to raising capital, &l;/span&g;&l;a href=&q;https://www.forbes.com/sites/njgoldston/2018/10/30/investments-in-female-founders-are-faltering-heres-what-you-can-do-about-it/#6742f074784e&q;&g;&l;span style=&q;font-weight: 400&q;&g;males consistently outperform females&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;. According to research by&l;/span&g;&l;a href=&q;https://www.allraise.org/data/&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;All Raise&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;, only 15% of venture capital funding is allocated to female founders. What&a;rsquo;s more troubling, despite a lot of concern and advocacy, we really haven&a;rsquo;t done much to address the discrepancy. All Raise&a;rsquo;s research confirms that the growth rate of funding injected into female-founded companies has plateaued over the last few years.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;The disproportionate level of funding channeled into male-led startups might suggest that these are more lucrative investments. This couldn&a;rsquo;t be farther from the truth. The investment landscape is laden with perceived biases that put an iron ceiling on women&a;rsquo;s ability to raise money. One &l;/span&g;&l;a href=&q;https://journals.aom.org/doi/abs/10.5465/amj.2016.1215&q; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;2018 study&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; found that, during investment pitches, female entrepreneurs are more likely to be asked &a;ldquo;prevention&q; questions&a;mdash;questions related to safety and potential risks and losses. In contrast, male entrepreneurs are more likely to be asked &q;promotion&q; questions&a;mdash;questions related to their hopes, ambitions, and achievements. This difference in the modus operandi has a measurable impact on the relative funding each gender receives.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Biases and prejudices are limiting our ability to see clearly. When we look at the evidence and research, we see that investing in female founders is extremely profitable. Females possess several key competencies, traits, and predilections that render them &l;/span&g;&l;a href=&q;https://www.forbes.com/sites/ashleystahl/2018/09/30/the-11-most-inspiring-female-entrepreneurs-to-follow-on-instagram-and-the-key-to-their-success/#6873b34f2674&q;&g;&l;span style=&q;font-weight: 400&q;&g;extremely worthy of VC funding. &l;/span&g;&l;/a&g;

&l;b&g;Female founders outperform males&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;The business case for funding female founders is simple&a;mdash;female founders outperform their male counterparts. A recent&l;/span&g;&l;a href=&q;https://www.bcg.com/en-us/publications/2018/why-women-owned-startups-are-better-bet.aspx&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;study&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; from Boston Consulting Group evaluated 350 companies that had been part of the MassChallenge program. The study revealed that, for every dollar of investment raised, female-run startups generated 78 cents in revenue, whereas male-run startups generated only 31 cents. As we might expect, women outperformed their male counterparts despite raising less money ($935K versus $2.12M).&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;This data is consistent with several other studies.&l;/span&g;&l;a href=&q;http://10years.firstround.com/&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;Data&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; collected by First Round Capital, for example, found that the female-founder companies it had funded performed 63% better than the all-male founding teams it had funded. Adding even more credence,&l;/span&g;&l;a href=&q;https://www.kauffmanfellows.org/wp-content/uploads/KFR_Vol7/Juliana_Garaizar_vol7.pdf&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;research&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; from the Ewing Marion Kauffman Foundation found that women-led teams generate a 35% higher return on investment than all-male teams. &l;/span&g;

&l;b&g;Female founders are less motivated by money&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;Entrepreneurs have a host of different motivations for starting companies. According to&l;/span&g;&l;a href=&q;http://www.illuminate.com/draftgender/gender-differences-web/&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;research&l;/span&g;&l;/a&g;

&l;span style=&q;font-weight: 400&q;&g;by Illuminate Ventures, these motivations differ among males and females. Specifically, males are nearly eight times more likely to be motivated by financial gain. 15% of male entrepreneurs are motivated to start companies for financial gain compared to only 2% of female entrepreneurs. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Investing in a profit-driven entrepreneur can be risky business. Horror stories of Jeffrey Skilling and Bernie Madoff loom large. When leaders are motivated by money, they are more inclined to make decisions that aren&a;rsquo;t in the long-term best interests of the company. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Scores of research confirm that money is not the most effective motivator. One&l;/span&g;&l;a href=&q;https://ir.lib.uwo.ca/cgi/viewcontent.cgi?article=1109&a;amp;context=hucjlm&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;study&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; found that people are more likely to perform well on a cognitively difficult task when they are intrinsically, rather than extrinsically, motivated. Another&l;/span&g;&l;a href=&q;https://www.ncbi.nlm.nih.gov/pubmed/24982165&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;study&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; spearheaded by Amy Wrzesniewski of Yale University and colleagues evaluated a cohort of more than 11,000 West Point military cadets over 14 years. Wrzesniewski found that the cadets who enrolled in West Point as a result of an extrinsic motivator (such as financial gain) were less likely to graduate, become commissioned officers, receive promotions, and remain in the military as compared to the cadets who enrolled as a result of an intrinsic motivator (such as a desire to lead others).&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Contrary to popular belief, entrepreneurship is not a get rich scheme. In reality, the typical business owner&l;/span&g;&l;a href=&q;https://www.inc.com/dorcas-cheng-tozun/what-success-stories-like-linkedins-262-billion-buyout-dont-tell-you.html&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;earns 35% less&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; than he or she would have earned working for someone else. The most successful entrepreneurs see money as a secondary byproduct of entrepreneurship. They have a strong desire to create something meaningful and to have a positive impact on the world&a;mdash;to make it a better place. When entrepreneurs are intrinsically motivated, they&a;rsquo;re more likely to go the extra mile and persevere through the inevitable obstacles that riddle the entrepreneurial journey. When push comes to shove, they&a;rsquo;ll make the sacrifices necessary to maximize the longevity and long-term prospects of the business.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Investing in a female founder doesn&a;rsquo;t mean that financial motivations aren&a;rsquo;t at play. Likewise, investing in a male founder doesn&a;rsquo;t mean that financial motivations are a key factor. But it&a;rsquo;s important to recognize that financial gain is significantly less likely to play a role when women are at the helm.&l;/span&g;

&l;b&g;Females are more likely to prioritize corporate social responsibility &l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;Mounds of data indicate that female-led companies are more likely to prioritize corporate social responsibility initiatives.&l;/span&g;&l;a href=&q;http://newsroom.haas.berkeley.edu/more-female-board-directors-add-improved-sustainability-performance/&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;Research&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; by Kellie McElhaney, the founder of the Center for Gender Equity &a;amp; Leadership at the University of California at Berkeley&a;rsquo;s Haas School of Business, has found that companies that have women on their corporate boards are more focused on environmental, social, and governance issues than companies with no female board members.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;A closer look at the research sheds light on why women may be more likely to prioritize triple-bottom-line initiatives. In a&l;/span&g;&l;a href=&q;https://www.npr.org/2014/04/09/300836825/why-men-outnumber-women-attending-business-schools&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;conversation&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; on NPR between Shakar Vendatam, NPR&a;rsquo;s social science correspondent, and David Greene, one of the co-hosts of NPR&a;rsquo;s Morning Edition, it was suggested that men &a;ldquo;have more lenient ethical standards than women&a;rdquo;. In support of this,&l;/span&g;&l;a href=&q;http://www.sciencedirect.com/science/article/pii/S0022103112000716&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;research&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; by Laura Kray of the University of California at Berkeley, and Michael Haselhuhn of the University of Wisconsin-Milwaukee found that men are more likely to justify poor ethical decisions and moral misconduct than women. They found that male&a;rsquo;s lower ethical standards are partially fueled by a desire to prove their masculinity. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;In today&a;rsquo;s ecosystem,&l;/span&g;&l;a href=&q;http://www.conecomm.com/research-blog/2017-csr-study#download-the-research&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;87%&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; of consumers are willing to buy a product or service based on a company&s;s advocacy concerning a social matter. Customers want companies to take a strong stance on social and environmental change. And companies are increasingly being assessed according to their ethics.&l;/span&g;&l;a href=&q;https://insights.ethisphere.com/a-clear-correlation-ethical-companies-outperform/&q; target=&q;_blank&q;&g; &l;span style=&q;font-weight: 400&q;&g;Research&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; by Ethisphere has found that companies who are listed on the World&a;rsquo;s Most Ethical Companies list outperform the S&a;amp;P 500 by 3.3%.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;It&a;rsquo;s time we finally break new ground in terms of closing the gender gap that exists between female and male founders seeking funding. The VCs, angel investors, and others writing the checks have the greatest power to fuel the change. By investing in female founders, you&a;rsquo;ll be able to fuel your level of impact and get an unprecedented bang for your buck.&l;/span&g;

&a;nbsp;&l;/p&g;

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