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Women Owned Startups Get 70% Less Investment

Yesterday* a disappointing statistic drifted through my Twitter stream. Marie Johns, Deputy Administrator of the SBA, told members of Springboard Enterprises that gender makes a difference when it comes to raising capital. Women who lead high tech companies raise 70% less than men.

Curious as to whether that stat stemmed from the fact that there are far fewer women in high tech startups (and therefore get a smaller piece of the total venture capital pie) or if the difference were based on gender itself, I went looking for more detail. An article in Inc. suggests that both factors come into play.

In 2010, Y Combinator funded 14 women-led startups out of a total of 208 investments. That speaks to the ratio question. More importantly, women owned companies actually receive less money when funded. And yet, women founders outperform their male counterparts. According to Inc., women:

Image of man and women at work in startup.

Startups need both men and women to achieve optimal performance.

  • Bootstrap more effectively
  • Have a higher success rate
  • Generate greater long-term profitability

We’ve seen the same outcomes when it comes to putting women on the board. Companies with gender diversity in the boardroom generate 48% better return on equity. This differential is attributed to higher collective, or group, intelligence.

Thomas Malone, MIT management professor, tested the impact of gender diversity by giving teams IQ tests. He proved that teams with the greatest number of women outperformed the teams with the highest collective IQs. “The standard argument is that diversity is good and you should have both men and women in a group,” he told the Harvard Business Review in June 2011. “But so far, the data show, the more women, the better.”

Neuroscience underlies the gender difference in a number of ways. For example, when presented with new information, men get the gist and women get the detail. This may be a critical success factor when it comes to the startup environment. Extreme resource constraints translate to a wider span of responsibility than people have in more mature, functionally structured organizations. Attention to detail helps get things done and improves quality. This may translate to an ability to execute, which would contribute to survival in the early years.

There are also gender differentials in communication and leadership styles. Women tend to employ a more inclusive style than men. A collaborative approach enables a company to tap into everyone’s strengths, inhibits the formation of silos, enrolls employees in initiatives, improves innovation, and fosters leadership across the organization. (Please note that collaboration does not mean building consensus.)

I wonder if venture capitalists are paying attention to the improved success rates and financial outcomes women bring to the table. Perhaps a gender clause should become an element of the term sheet. Of course, it’s not that easy. Even if more VCs started promoting gender diversity, people are not interchangeable. You still have to get the right mix of people in order to establish high performing teams. Let’s remember that the positive effect of diversity doesn’t stop at gender.

*This post was originally published by Modern DC Business Magazine on June 7, 2012. The content has been extended for this posting.

© 2012. All rights reserved.

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