A company with a female founder and a female executive will hire 6x more women. This is how we improve gender-diversity in startups.
Research by Collin West and Gopinath Sundaramurthy
In our previous article, we showed that gender representation for women in startups needs significant work. For example, all-male founding teams are much more likely than teams with at least one female founder to raise capital from investors. Encouragingly, when teams with at female founder do raise capital, they tend to raise more capital than their all-male peers. Even so, the gap becomes starker when one realizes that:
- Women make up 50.8% of the U.S. population, based on the latest census data;
- Since 2014, more women have obtained a 4-year college degree each year than men; and
- In the UK, companies with gender-diverse senior executive teams noticed an increase in EBIT.
But at the same time,
- Just 4% of Fortune 500 CEOs are women;
- A CEO is more likely to be named John or David than be a female CEO; and
- Women are much more likely to be hired when making use of blind applications.
One reason for this last statistic could be that founders, like everyone else, tend to hire people that resemble themselves. Humans look for similarities in others—it’s wound up in our sociobiology. Men tend to hire more men, women tend to hire more women.
In a search for answers, we used data to look into key drivers that could close the gender diversity gap in startups. We, at the Kauffman Fellows Research Center (KFRC), analyzed US venture-backed startup data from over 90,000 companies going as far back as 2001. The research also included a dataset of over 400,000 employees working at these startups—including founders, C-level executives, and board members—of which only 60,000 (15%) were women.
Current investment landscape
Figure 1. Total yearly investment raised by founder’s type
Despite the data showing that startups with at least one female founder, or “female-founded startups”, raise more capital per round than all-male founding teams, all-male teams have a big advantage in getting a “yes” from VCs. Between 2000 and 2018, the percentage of startups with at least one female founder increased from about 4% to over 20%. During the same period, however, all-male founding startups continued to attract record levels of venture investment dollars while the female-founded startups showed a marginal increase before plateauing (Figure 1). Nowhere is this disparity more pronounced than 2018, when all-male founded startups raised a whopping $100 billion versus $12 billion by firms with one or more female founder.
In 2018, for every dollar raised by a startup with a female founder, male-only startups raised $8.33.
Figure 2 (left). Investment rounds by firm’s founder type. Figure 3 (right). Investment rounds by firm’s chief type.
The bulk of the investment dollars raised also went into later-stage rounds, which tend to be dominated by all-male startups (Figure 2). So, while female-founded startups raise more median capital per round than all-male founding teams, the sheer number of all-male startups tips the scales heavily in their favor. Given the high failure rate of startups, and the rarity of a massive startup return like Google or Facebook, we find that all-male founded teams are receiving significantly more opportunities to arrive at a rare but powerful outcome than female-founded startups.
If we want real change, it must start at the top
Although momentum is building to support hiring women and investing in women-founded companies, it’s going to take a much stronger and holistic effort by the entire startup and venture capital industry to make substantial and lasting change.
“I don’t ever want to be part of a quota where people invest in my firm because they have to,” says Tammi Jantzen, COO and CFO of Astarte Medical Partners. “But, on the other hand, I would like an equal opportunity to get in front of those investors just like any male-led company. There needs to be accountability at every level to make a real change.”
As a startup matures, there is a tendency to emphasize gender diversity later in the company’s lifecycle, as companies typically expand from being small, often-homogenous teams, to large heterogeneous companies with dozens or hundreds of employees. When the race for talent at different roles—including every rung of the ladder from entry to C-suite or “chief”—heats up, startups have no choice but to be more diverse. Figure 2 shows that the percentage difference between female-founded firms and all-male firms is similar across rounds. But by looking at Figure 3, one can see that the percentage difference between firms with at least one female chief and all-male-chief firms continuously drops until they are nearly equal by Series D. However, requiring at least 1 female chief is a very low bar to be considered gender diverse at the C-level so not all gender parity issues are solved in later stages of a company.
Figure 4. Firm’s gender breakdown by firm’s founder type.
One explanation for this difference is that founders and chiefs tend to hire people that resemble themselves, with all-male founded/chief firms hiring more men and female-founded/chief firms hiring more women. Figure 4 showcases gender percentages for female-founded firms or all-male founded firms across industries. Female-founded startups tend to have much more symmetrical gender splits, with company employees seeing the most even split at around 40% female and 60% male. In fact, female founded firms hire 2.5 times more women than all-male founded firms. Companies with only male founders showed a tendency to not have as many women as executives, board members, or employees. The impact is more pronounced for employees and executives in industries like consumer services and healthcare, which, as shown in our previous article, has a greater percentage of female founders.
Female founded firms hire 2.5 times more women than all-male founded firms.
Figure 5. Firm’s gender breakdown by firm’s founder and chief type
Breaking down these firms (Figure 4) one level further, we find that companies with at least one female founder and at least one female chief have the most balanced company gender split, ranging from about 31% to 41% female roles (Figure 5). In fact, f
Female founded firms with at least one female chief hire 6 times more women than teams with male-only founders and chiefs.
Although this group’s split is still a far cry from an even 50/50, when one looks at the other end of the spectrum, companies with only male founders and only male chiefs have the highest gender disparity. In fact, the Business Services industry has the most balanced male/female split of this group, with a mere 6.4% female roles compared to 93.6% male. Even in male-only founder firms, having at least one female C-level executive drastically improves the gender breakdown, with the male/female ratio very similar across industries.
Startups miss opportunities when the team lacks diversity
“Venture capitalists tend to back serial entrepreneurs that have been successful in the past,” notes Tammi Jantzen. “Venture capitalists are comfortable with entrepreneurs with vetted track records for obvious reasons, but because of that, we’re exacerbating the problem, since many women haven’t had the opportunity to become serial entrepreneurs. The most important point is that everyone has to be more risk-tolerant and open to the idea of giving women that shot.”
This discrepancy between investment opportunity and gender poses two significant issues, internal for the startup itself and external for the industry as a whole.
1) Diverse viewpoints are missed. Internally, since there are fewer female founders and C-level executives in the early rounds of a company’s life cycle, many opportunities for diverse viewpoints for foundational and critical company and market decisions may be missed.
2) Women miss opportunities that come with a positive early-stage exit track record. Since there are fewer female team members at the earliest stages, women are more likely to miss the large financial windfalls associated with owning equity in the earliest stages of a startup.
We believe the best approach to achieving gender-parity in startups is VC’s backing more female founded companies and startups hiring female executives early in their lifecycle.
The issue of supporting female entrepreneurs should be raised at every step of the startup life cycle—not just broadly washed over when looking at large fundraises and IPOs. Our results show that supporting women in startups now will likely result in significantly more successful female entrepreneurs who will help pave the way for future generations of women to get involved, creating more jobs for all genders along the way.
Startups, #DiversityMatters. We challenge you to make your next executive hire a woman.
This research was funded by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of Grantee
All the data used in the development of all charts and insights was obtained from Crunchbase private-market data. Specifications of the analysis includes:
- Venture rounds for US based firms between 01 January 2000 to 31 December 2018
- Venture rounds excluded from our analysis including debt, lbo, exits (ipo, M&A), crowdfunding, etc.
- Venture rounds that did not contribute to dilution were resolved with previous rounds and then excluded from the firm’s round count
- We found that our analysis was similar to what we have seen published with other datasets. For example, venture capital financing rounds. in this study are comparable to US NVCA-Venture reports published by Pitchbook.
- Only male and female genders were included in the analysis
- Executives with ‘founder’ (case insensitive) in the titles were tagged as founders
- If the firm only had all-male founder(s), then it was marked as an all-male founded firm
- If the firm had at least one female founder, it was marked as a female-founded firm
- Executives with titles including ‘ceo’, ‘cto’, ‘cfo’, ‘cio’, ‘chief’, ‘coo’, ‘cro’, ‘president’, ‘co-owner’ and ‘cdo’ (case insensitive) were marked as chiefs
- If the firm only had all-male chief(s), then it was marked as an all-male chiefs firm
- If the firm had at least one female chief, it was marked as a female-chiefs firm
- Crunchbase’s disclaimer for gender data: “Crunchbase’s dataset is constantly expanding, but there are gaps. A company may not have founders listed on its Crunchbase profile. Or Crunchbase might not have a gender listed for founders that are attached to the person’s Crunchbase profile. (Note: In addition to “male” and “female,” Crunchbase has over two dozen other gender tags.)
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