Intrinsically valuable women-led startups are not making it to market because of the large growing gap in access to venture capital (VC) financing, research shows. The root of this cycle can be traced to the astonishingly low rate of women General Partners (GPs) in VC today making investment decisions — one percent. The question is: why would this directly affect the rate of funding for female-led startups – which currently sits at a mere 2.7 percent. We examine research published in the Harvard Business Review by Sahil Raina, an assistant professor of finance at Alberta School of Business, which shows women entrepreneurs are more successful with women investors.

Raina’s study reveals women-led startups have a 32.1% greater chance of an exit when funded by female VCs. Raina states, “I find evidence that suggests better ability to evaluate female-led startups contributes to the difference in the performance gap between the two sets of VCs [male and female]. I study whether female GPs improve female-led startup performance themselves or whether the improved performance is tied to the culture of female VCs. My evidence suggests that female GPs are directly responsible for improved female-led startups’ performance.” So as we’ve highlighted above, women are getting very low levels of VC funding, handed out by an overwhelming majority of male VCs. And now we’ve discovered that perhaps women-led companies are better off not seeking funding from all male VC firms anyway, as the research shows they will perform better with women GPs.

For his research, Raina used Crunchbase, where he compared women-led and menled startups. Raina found there was a gap in the rate of successful exits between the two, 17% and 25%. However, Babson College also provides other studies citing women-led companies perform better than those that are led by all men. Interestingly, when Raina took the gender of the financer into account he found that when financed by women VCs this gap between men and women led disappears. He states, “The different performance of startups backed by female and male VCs also suggests that GP characteristics impact portfolio firm performances.”

Raina recounts that these issues happening in VC could be due to several factors including: male VC’s inability to evaluate the opportunities women-led startups have in the early stages because of the difficulty they have in understanding a product/idea that is directed at women. Raina warns that this phenomenon of the gender of the investor influencing the success of the startup is strongest in the early-stage companies.

Understanding this research is important for any women-led startups looking to increase the chances of their company’s success. This research underlines our thesis at True Wealth Ventures, that women-led businesses supported by women investors outperform. We are happy to be a part of a growing ecosystem of women investors, and we strongly encourage that women-led companies seeking VC funding pursue firms with a woman investment decision maker.

Brush, Candida et al. “Entitled Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital” Babson College Center for Entrepreneurship. September 2014.

Costello, Trish. “Women Are Hacking Venture Capital, and People Don’t See it Coming. Matter Mark. 26 February 2016.

Raina, Sahil. “VC Financing and the Entrepreneurship Gender Gap”. November 2016.

Raina, Sahil. “Research: The Gender Gap in Startup Success Disappears When Women Fund Women. Harvard Business Review. 19 July 2016.