Want your start-up to get ahead? Get a female team member.
That is a key finding of professors at Babson College, a leading US business school which specializes in entrepreneurial research, in a study of states-based start-ups.
The report, Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital, found that start-ups with a female founder are more likely to achieve higher valuations in both their first and third rounds of venture capital funding.
Data from the analysis of nearly 7,000 companies show that female-founded firms receive valuations which are up to 64% higher than those without a female team member.
The amount of early-stage investment in companies with a woman on the team has tripled from 5% to 15% in the past 15 years – but 85% of all venture capital–funded businesses still have no women on the executive team.
The majority of VC funding therefore goes to male-only start-ups, and Babson also found that less than 3% of venture capital-funded companies had a female chief executive.
VC firms with women partners are also more than twice as likely to invest in companies with a woman on the executive team, and more than three times as likely to invest in companies with women CEOs. However the total number of women partners at VC firms has fallen 6% to 10% since 1999.
“Only a small portion of early-stage investment is going to women entrepreneurs,” said Babson professor and report author Candida G Brush.
“Enormous untapped investment opportunity exists for venture capitalists smart enough to look at the numbers and fund women entrepreneurs,” she added.
Patricia G. Greene, professor of entrepreneurial studies at Babson, said that women entrepreneurs think they need to change their approach to networking, pitching or industry sector in order to secure venture capital, but these widely-held beliefs have not increased the provision of early-stage capital.
“The findings of this study demonstrate [that] it is not the women who need fixing; the model for venture capital that has been in place since the 1980s simply does not work for women entrepreneurs,” she added.
There has been an increase in MBA graduates pursuing entrepreneurship as a career option, while business schools like Babson have increased the provision of entrepreneurial education for their students.
But these findings will do little to assuage concerns about the gender gap at most business schools, and show that start-ups with female founders are still not receiving a proportionate about of investment capital.
The Babson report recommends that the VC industry should do more to recruit and promote women investors, and showcase venture capital–funded women entrepreneurs in order to change social perceptions.
Kerrie MacPherson, a principal at consultancy EY which sponsored Babson’s research, said that women entrepreneurs are a “powerful force” in the US economy, and deserve greater attention and resources.
She added: “While a significant number of organizations have emerged to help support, train, and celebrate women entrepreneurs, more must be done to ensure women entrepreneurs have the funding they require to accelerate their growth and achieve their full potential.”
For MBA entrepreneurs, it matters where you attend business school. A study by PitchBook, a VC and private equity research firm, found that MBA students at US schools are more likely to receive VC investment regardless of gender.
The report, which ranked the top-25 MBA programs globally in terms of number of entrepreneurs, company count and VC investment, found that Harvard, Stanford and Wharton MBAs raised the most capital, a combined $9,328. Harvard also had the most companies founded – 312.
For female founders, the top business schools for raising VC capital are Harvard, Stanford and MIT Sloan.
But a separate study by PitchBook found that 14% of VC investments this year in the US went to companies founded or co-founder by a woman. For e-commerce start-ups, nearly 40% of the firms winning VC backing were founded or co-founded by women, according to the study, up from below 20% in 2009.
Kerry Healey, Babson president, said: “Closing the gender gap and providing greater funding opportunities for women entrepreneurs not only makes good financial sense for venture capital firms, it also will drive new economic growth and spur innovation.”