Ignoring women is costing venture capitalists money, according to analysis that raises questions about the prevalence of business models which overwhelmingly favour male founders.
Mass Challenge, a US accelerator that examined 350 companies going through its programmes last year, found that men-only businesses were a worse investment. For every dollar of funding, start-ups with women on the board generated 78 cents, while those founded only by men generated 31 cents.
Mass Challenge also discovered that investments in companies founded or co-founded by women averaged $935,000, compared with $2.1m invested in companies founded by men.
Yet the former generated 10 per cent more in cumulative revenue over a five-year period.
A report for the UK Treasury on Monday found that all female leadership teams received less than 1p of every £1 of investment in start-ups, with another 10p going to mixed teams and 89p to all male teams.
Helena Murphy, who founded Raising Partners, a consultancy based just outside London which helps companies find funding, partly blamed the dominance of men in VC firms.
The most common question she is asked when arriving to pitch for clients is this: “Are you the new temp?”.
One meeting with the all-male investment team at a City law firm just before Christmas found her staring at the table: the walls were covered in paintings of nude women. “It was very odd,” she said. “I just tried to ignore it.”
Only one in 10 decision makers at UK VC firms is female, a 2017 study by Diversity VC, a non-profit organisation, found. Two-thirds of firms have no female partners. “People tend to invest in what they are familiar with, what they ‘get’,” said Ms Murphy. So male-dominated teams may ignore a product aimed entirely at women.
“I’ve . . . heard of male venture capital partners turning down companies founded by women targeting female audience groups because ‘their wives wouldn’t use the product’,” said Francesca Warner, chief executive of Diversity VC.
Men also tend to ask for more money than women, and offer more optimistic predictions of how they will do, leading some VCs to believe they will make them more money, according to Raising Partners. The consultancy said it often had to reduce the claims made by male teams before pitching the business. “Women under promise, and over deliver,” said Ms Murphy.
Some 34 per cent of male entrepreneurs have seen a business fail compared with 23 per cent of females, according to Beauhurst, an investment data analyst.
A survey by Kleinwort Benson in 2015 found female entrepreneurs created more long-term value. “They avoid the errors that befall early-stage businesses, and demonstrate a more consistent track record, making them more attractive to potential acquirers,” said Paul Bentley, head of entrepreneurs.
The Treasury research, by the British Business Bank, a state-owned wholesale lender, found all-female teams accounted for 4 per cent of all UK VC deals in 2017, but only 1 per cent by value. Mixed gender teams received 12 per cent of deals and 10 per cent by value. There were £5.6bn in deals in total.
Sectors also play a role. Software attracts the most VC deals but only 26% of employees in digital industries are women.
There have been a series of sexual harassment and gender discrimination scandals in Silicon Valley, and data published for the first time last December shone a light on the European tech sector’s lack of diversity. Across Europe, investors placed 93 per cent of money in companies with no female founders, while almost half the women who responded to a 5,000-person survey said they had experienced discrimination in work.
Liz Truss, the chief secretary to the Treasury, who launched the UK report at 11 Downing Street on Monday, riled investors with an interview in the Daily Telegraph. She said that “women need to be less squeamish about making money”. “The female founders I know are extremely commercial and not in the least bit squeamish about growing huge businesses,” said Ms Warner.
“We’ve worked with lots of female founders and I don’t think they’re squeamish about making money,” said Suzanne Ashman, partner at London-based venture firm LocalGlobe.