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If you want your start-up to get ahead, get a female on the team. That is a key finding from a wide-ranging study of US-based start-ups by professors at Babson College, Massachusetts, which specialises in entrepreneurship research.
The report, based on an analysis of 6,793 companies, found that those with female founders were more likely to achieve higher valuations in both their first and final rounds of venture capital funding.
The percentage of early stage investment made in companies with women on the team had increased from 5 to 15 per cent since Babson last conducted similar research 15 years ago.
However this still meant the vast majority of VC funding went to male-only teams, and only 2.7 per cent of the VC-funded companies studied had women chief executives.
VC firms with female partners were more than twice as likely to invest in companies with a woman on the executive team than male-only VC firms, however the number of women partners in VC firms was found to have fallen from 10 per cent to 6 per cent since 1999.
Candida Brush, one of the report’s four authors and a Babson professor, said: “An enormous untapped investment opportunity exists for venture capitalists smart enough to look at the numbers”.
Her co-author Patricia Greene added that the findings debunked previous theories that women entrepreneurs needed to change their approach to networking, pitching or industry sector in order to secure VC funds.
“It is increasingly apparent that many women entrepreneurs have followed these prescriptions, yet they have not been able to achieve proportionate increases in early-stage growth capital.”
Other studies have been more optimistic about US-based female founders’ chances in particular areas where VC investment is strong.
A study by PitchBook, a VC and private equity research firm, found that 14 per cent of VC investments this year in the US went to companies founded or co-founded by a woman, but that among e-commerce start-ups the figure was higher and rising quickly.
Among e-commerce companies, nearly 40 per cent of the start-ups winning venture capital backing were founded or co-founded by women, PitchBook claimed. That was up from below 20 per cent in 2009.
The Babson report recommends examining why so few women choose to enter or stay in the VC industry and urges the sector to do more to promote women investors to partner level.
Robin Klein, founder of The Accelerator Group, an investment advisory company for early stage internet services businesses, agreed that more women were needed in the VC industry, adding that he felt confident this would happen.
“Venture capital has been focused on technology companies so an engineering bias was evident,” he said. “The problem, and [the] opportunity, starts with too few women in engineering, something I think is changing fast.”
Kerrie MacPherson, a principal at Ernst & Young, which sponsored Babson’s research, said: “We have seen firsthand how a lack of access to capital can limit business with a woman on the executive team from reaching their full promise.
“While a significant number of organisations 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.”