Although women receive much less funding, they often have sustainable and economically successful business ideas. This needs to change. The responsibility to promote talent and innovation in the startup world, rather than primarily focusing on gender, lies with all of us.
The startup scene is booming – even in Switzerland. Last year, over 49,000 new companies were registered in the commercial register. Over the past decade, the number of company formations in Switzerland has increased by around 13 percent. And the number of female founders is also on the rise!
The number of female founders is rising – but where is the funding?
37 percent of all new companies were founded by all-female teams. However, if you take a closer look at which companies are founded by women and especially, which companies receive the big money, it's a perpetual déjà vu: Women are significantly underrepresented in growth-oriented startup ventures. This means they found significantly fewer companies that are externally financed, require high investment costs, and skyrocket internationally.
Currently, for instance, only ten percent of companies in the tech sector are founded by female teams. Even more shocking are the numbers concerning funding: of all startups that received external financing – money from investors – in 2022, only seven percent were led by women. This problem is globally recognized and persistently prevalent: across Europe, only two percent of capital from professional investors, known as venture capitalists, flows into all-female teams. Accordingly, very few female teams have made it to the club of so-called unicorns and transformed their startups into gigantic monster companies. One of the few among them is Whitney Wolfe Herd, who achieved an IPO with her digital dating platform Bumble, with a company valuation of over 8 billion US dollars.
The Gender Funding Gap – a chicken-and-egg problem?
According to studies, this has various reasons. Firstly, founders need a strong network to secure financing. After all, investments in startups involve a lot of trust. Since the investor side is often very male-dominated – hello Gender Investment Gap and Overall Gender Earnings Gap – it's harder for female founders to network. Additionally, many investors make so-called "like-me" decisions when they invest. This refers to the tendency to invest in people who are similar to oneself. If globally 70 percent of investors are white men, one can imagine where that leads.
There's also a chicken-and-egg problem: When the majority of the big money flows into startups led by men, it's not surprising that the most successful CEOs of startups so far are also primarily men. This, in turn, leads to a distortion in the perception of investors – namely, that men make better entrepreneurs. As a result, investments in companies led by women are unjustly perceived as riskier.
Plot twist: Women are economically more successful on average.
Because what is unfortunately far too little known is this: Women not only often have more social business ideas than men (for this, I recommend this article on the so-called Zebracorns). They are not only more often intrinsically motivated (63 percent of female founders report in surveys that they primarily start a startup because they want to change something).
No, they are also economically more successful on average. Studies such as this one from the USA show that startups led by women handle their money more efficiently, experience higher growth in the valuation of their companies, and achieve exits – the sale of the company where investors can exit – earlier. In short, for investors, investing in female-led startups is lucrative because, on average, they receive their money back earlier and with a higher return on investment.
Investments in social and sustainable startups benefit society and lead to innovations being shaped by a broader group of people – which pleases at least half of the consumers, namely women. And investors surely don't mind if their money is well placed.
Women financing women as a solution?
Now one could argue that it should primarily be women investing in female-led startups. After all, they may see the potential behind these business ideas more readily and are predisposed to it due to the "like-me" effect described above.
However, looking at the latest study from the Harvard Business Review, it becomes clear: that's not enough! When women are only financed by women, they often have difficulty obtaining further funding for their companies afterward. Why? Because investors then assume that they only received money because of their gender and not because their business idea is really good. They are perceived similarly to a "token woman" who supposedly only got a job because of her gender.
Accordingly, it is important that not only women in large venture capital firms look for female founders. That not only larger private investors invest in women. And that not only women participate in crowd investments by women. We all should invest more in female founders.