Venture Capital: Women Are Catching Up
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Venture Capital: Women Are Catching Up

For a start-up, the difference between make and break is whether it succeeds in accessing venture capital. Women are managing to secure an increasingly large slice of the pie.

Hardly any government would fail to beat the drum for entrepreneurship. After all, what is at stake is how innovative the country's economy is, and whether it can sustain or improve its competitiveness. Numerous panel discussions and discussion groups focus on how lively the start-up scene is and how access to venture capital (VC) can be supported.

But what about the female start-up scene? Do women company founders obtain their fair share of the venture capital pie? This is a crucial question as VC determines whether a company is given the financial means to exploit market opportunities and to grow in line with its potential.

Women Are Catching Up

Credit Suisse's latest Gender 3000 report entitled "The Reward for Change" examines this aspect in detail. Although the data shows male dominance in the venture capital sector, women are catching up.

More and more female entrepreneurs are pushing their way into the market to secure themselves a share of the pie. The number of companies founded by women has been increasing by 15 percent annually over the last ten years. By comparison, the number of young entrepreneurs has only been growing by three percent per year. The number of women-led start-ups that have obtained venture capital has also grown by ten percent per year in the last decade. In the case of men, the growth has been only two percent per year.

Venture Capital Is Male

But the venture capital scene is still male: In the 100 largest VC firms, only seven percent of the partners are women, and only 38 percent have at least one female partner.

Female diversity among investment partners in the top 100 US VC firms

Female diversity among investment partners in the top 100 US VC firms

Source: CrunchBase

However, it is safe to assume that more women will be involved as VC companies are increasingly being co-founded by women. The data shows that these are attracting more women executives. For example, in these businesses 43 percent of partners are women, compared with the industry norm of seven percent. Ultimately, more women are needed in positions which require making decisions about investments in start-ups. This is the only way for women to obtain a fair share of the overall venture capital pie.

Women Finance Women

It has long been known that VC companies headed by women invest four times as often in women-led start-ups than those whose corporate boards only comprise men. One can only speculate about the reasons for this. According to the authors of the Credit Suisse study, the principle of "like likes like" may be at work. People tend to surround themselves with what is familiar, in terms of gender, origin, character traits etc. In addition, women VC partners seem to be less impressed, or possibly less deterred, than their male colleagues by the way a business idea is presented.

Better Understanding of Market Opportunities

If female company founders receive their capital from other women, they are just as successful as their male counterparts. But not if they receive the money from men: In that case, on average, the companies founded by women do not go as far as those founded by men. Only 17 percent of "female" companies can be taken public or sold; in the case of men, it is 27 percent.

Gender gap

Gender gap

Percentage of successful outcomes

Source: Sahil Raina, University of Michigan, Ross School of Business, 2016

One possible explanation is that women investors have a better understanding of market opportunities that have been tracked down by women, and are able to assess them more accurately than their male counterparts, in particular when the business model is targeting a female clientele.

To conclude, the trend is clearly upward. The number of women company founders is growing more quickly than that of male founders. Women are obtaining an increasing share of venture capital from funds that, more and more, are being managed by women.