TOOL: The Business Case of Female Founders & Investors!

Female Founders Outperform Male Peers! We´re starting to get more hard facts and stats demonstrating that women-led businesses outperform the market. To make it easier both for investors, programs and fellow female founders, we´re compiling a resource of hard facts and quality research here - we hope you will enjoy it, use it and pay it forward by spreading it to anyone that should learn more!

As diversity among financial decision makers has a huge impact on the funding access for female founders, we´ve also done an excersize on gathering some really good intel on the performance of diverse investment teams.

Insights on the Performance of Female Founders

• First Round Capital reports that female-led companies performed 63% better than all-male founding teams, and generated a 35% higher return on investment

• MassVentures´ article Diverse Teams Outperform support the findings by Gompers/Kovvali, highlighting 5 key competitive advantages as an evergreen fund; 1) A huge and growing pipeline of dealflow opportunities, 2) Outsized performance, 3) Limited competition for deals, 4) Leverage without debt, 5) Better performance on attracting and retaining high performance employees.

• A BCG report found that female-founded startups generated 78 cents for every $ of funding, while male-founded startups only generated 31 cents

• Looking at Pitchbook, women founded companies tends to exit faster for double the return

• Ditch the Pitch! Harward Business Review: How the VC Pitch Process is Failing Female Entrepreneurs

• While just 2% of VC capital goes to firms founded solely by women, closer to 20% of VC capital goes to firms with at least one woman as a cofounder. Up from 7,2% in 2011. The majority across 3 verticals; B2B services, software and bio/pharma.

• Diving into US VC funds over the last decade, an impressive 69,2% of the top-quartile-scoring included female decision-makers

• Catalyst´s study shows that companies with higher proportion of women in top mgt. delivered 34% higher return on equity, and 42% higher return on invested capital - compared to companies with the lowest proportion of women in such positions

• Mercer has conducted proprietary research and deep analysis of DEI issues since 2007. Their approach is designed to unearth the most compelling opportunities that will best suit your goals while promoting positive change, and they highlight the following drivers behind the rise in DEI investments: 29%+ of women-owned (and 34%+ of minority-owned) PE firms are top-quartile performers. Companies with above average diversity achieved 19% higher innovation revenues. Companies in the top quartile for racial/ethnic diversity are 35% (and 15% for gender) more likely to surpass their peers.

• In a McKinsey study, ethnically and racially diverse companies are 35% more likely to record financial returns above industry median.

• Diversity and Inclusion (D&I) Global Market Report 2022: Diverse Companies Earn 2.5 Times Higher Cash Flow Per Employee and Inclusive Teams Are More Productive by Over 35%.

• NEOMA Business School researchers found, opens new tab that companies with more women in senior roles tended to engage in less excessive risk-taking

• Diverse workforces show better employee engagement, and a study available only to CIPD members shows better decisions made in 87% of cases, when comparing diverse and non-diverse groups. 

• Diversity also improve companies´ ability of attracting and retaining talents. 83% Millenials engage more actively in their job when the company invests in building a diverse and inclusive culture. A 2020 McKinsey report reveals that 39% of applicants have rejected offers, due to lack of employers investment in diversity and inclusivity. 

The Business Case of More Diverse Investment & Selection Teams

• Within public markets, analysis from Bloomberg’s hedge fund database shows that funds either controlled or managed by a minority background or female leader had an average return of 6.6% over the previous three years compared to 3.9% for their peers.

• The Diversity and Investment Performance report by Investment Adviser Association based on almost 60 different publications, find strong evidence that Women investors (or firms owned by women) generate investment performance that is at least as good as the performance of men investors. And that teams that include more women and minorities generate investment performance that is at least as good as the performance of teams that have little or no diversity.

• The Other Diversity Dividend, by Gompers/Kovvali at Harvard, found that diverse investment teams perform 10-30% better than homogenous teams.

• Willis Towers Watson’s 2023 diversity study showed that across asset classes, investment teams in the top quartile of diversity outperform those in the bottom quartile by 45bps per annum. Their 2020 report concludes that investment teams with diversity - in particular ethnic diversity - tend to generate better excess returns.

• Wells Fargo Wealth & Inv. Mgt. (WIM) "Gender Differences in Performance", concluded that out of 900K investment accounts between 2010-2015, women investors in the study led men by a small absolute margin for the 5-y period. Controlling for risk led to higher average returns for women investors.

• The 2021 "Portfolio Management Gender Gap is Big and Investors are Losing Out", concluded that women portfolio managers outperform their benchmarks proportionately to their male counterparts.

• NAIC 2021 report "The Financial Returns of Diverse Private Equity Firms", conclude that diverse PE funds represented by the NAIC Private Equity Index produced higher net IRRs than the Burgiss Median Quartile in 76.5 percent of the vintage years studied.

• HEC & MVision´s 2019 "Impact of gender diverse investment decision making on PE performance" summarized in FT "PE: The Bottom Line Benefits from Gender Diversity", concluded that committees with at least one female member outperform all-male committees across 3 widely recognised PE deal performance indicators (PERACS Alpha, total value paid in,IRR). Diversity also brought down average capital loss ration of a fund by 8% to 12%, and women-made deals tended to have longer holding periods.

• IFC & RockCreek 2019 "Moving toward gender balance in private equity and venture capital", covering more than 700 funds & 500 portfolio companies in emerging markets, shows a positive correlation between the gender diversity levels of GPs and their portfolio companies and their performance.

• From a private equity perspective, an in-depth study conducted by the HHL Leipzig Graduate School of Management across 1,071 private equity fund partners involved in 1,295 buyout deals by 117 funds, found that diversity within investment decision-making functions delivered higher IRRs.

• In regard to venture capital Founders, the Harvard Business School paper, “Diversity in Innovation” analyzed a comprehensive data set across asset managers in the United States since 1990 and concluded that the more diverse the investment partners of a firm, the greater the performance of their funds. For example, the rate of successful monetization of individual investments via acquisitions and IPOs were 11.5% higher among partners from different schools than those with shared school backgrounds. The detrimental effect of shared ethnicity was also considerable with more ethnically diverse investment partners increasing the comparative rates of successful monetizations from 26.4% to 32.2%.

• Statista´s 2020 report shows that in cases where 45 percent or more of accelerators´ selection committee were women, 56 percent percent of startups in the applicant pool and 57 percent of startups in the cohort were female-led startups.

• Research suggests that VC firms with at least 10% female investing partners have 1.5% better fund returns and 9.7% more profitable exits. When a woman is on the investing team, a female entrepreneur is 70% more likely to be funded than if no women are on the team.