A few weeks ago, Goldman Sachs announced their “Launch With GS” promise to invest in $500M in female-founded companies.
This commitment is certainly a matter of equity. In their report last month, Goldman Sachs noted that the gender funding gap is estimated at nearly $1.5 trillion.
It’s also a better investment.
In her announcement about Launch With GS, Chief Strategy Officer Stephanie Cohen stated, “Our goal is to generate strong investment returns. The bottom line is this makes sense for our business.”
Investing in female-founded companies makes sense for any investor, and other investment companies such as BBG and the Female Founders Fund are following suit. In the 2015 10 Year Investing Report by First Round Capital, the first of the “10 Lessons” bolstered women as the ‘winners’ in post-money performance. In evaluating 300 companies and 600 founders, they found that women outperform their male counterparts by 63%.
But, despite the proof that women score higher returns on investment, many male venture capitalists have not changed their investing behaviors in favor of females. “It’s going to take a concerted effort by all organizations to foster environments that allow talent to thrive, regardless of race, ethnicity, gender, disability, sexual orientation or age,” Coen concluded. Something has to change at a behavioral level to close the funding gap. The perpetuated stereotypes about female founders’ capabilities to run and grow a successful startup continue to be a hindrance.
Harvard Business Review shared their findings after they recorded venture capitalist’s discussions of their final funding decisions, proving that these negative stereotypes persist. The recordings unveil the differences in how investors observe male and female founders. Comments describing female founders included…“ [she is]…too cautious and does not dare”, “[she] lacks network contacts”, and “[she] lacks the ability for venturing and growth.”
And yet, if these were true, how is it that women have a 63% higher return on investment?
To ensure that efforts to invest in women happen on a grassroots level, these assumptions about female founders must be demystified.
- A Female Founder Is Not Too Cautious. Calling a female entrepreneur ‘cautious’ or ‘risk-averse’ is an oxymoron: the fact that she is devoting her time and resources to her venture is risky behavior. Numerous studies assert that women tend to be more risk-averse than men, but this isn’t necessarily a bad thing. The Economic Inquiry’s 2007 research found that “women appear to be less willing to risk being caught speeding than men”, and that the average woman makes safer choices regarding her health. According to these studies, women tend to be more diligent and less reckless. These behaviors suggest that women spend investment money wisely, which should be a positive omen for venture capitalists.
Prove it: Share a story in your pitch about a time you risked big in the creation of your startup. You inevitably did. Position yourself as someone who has risked historically in other ventures to ensure that you aren’t seen as cautious. If you’ve raised money to date, discuss how you’ve carefully utilized those funds for optimal returns. This will prove that even if you’re a bit cautious, you know how to put an investment to work.
- A Female Founder Does Not Need Help Building Her Network. Systemically, it’s true that women have a harder time networking with other women in the industry. The Wall Street Journal reports that this is due to the lack of women in positions of power to assist in introductions and referrals. But, this doesn’t necessarily mean that women need help building their network. Quality of connections outweighs quantity.
Prove it: The ‘team’ page of your pitch deck is the ideal place to prove this notion wrong. Include a list of strategic advisors as a marker of networking credibility. Because you’re tapped into networks in your product’s industry, rely on industry leaders who have assisted you along the way. Ask them if they’d like to advise your company on an as-needed basis. It’s a small ask of them that can greatly help you.
- A Female Founder Does Not Lack Ability for Venturing and Growth. This is supported by recent research. TINYPulse’s 2017 Startup Culture Report found that the fastest growing startups are 75% more likely to have a female founder.
Prove it: In your pitch, include details on how your startup has grown since it was founded to prove that growth has historically been achieved. These details should include high rates of customer acquisition, low rates of churn, and salient financial projections for growth over the next three to five years. Foresight recommends an in-depth understanding of per-user economics, anticipated market share, and the costs. Proving to the venture capitalist that you understand your startup’s capacity for growth and what’s required to achieve it will ensure that your ability for venturing and growth is not undermined.
Goldman Sachs’s efforts can’t close the funding gap independently, but efforts like these combat antiquated stereotypes about female founders’ investment potential. If male venture capitalists know what’s good for their wallets, they’ll follow suit and make the smart investment decision.