Why Female Entrepreneurs Are Important To Investor Portfolios

If you don’t know, you heard it here first: female entrepreneurs are important to the startup ecosystem and make logical additions to investor portfolios. We know how to launch successful businesses. In fact, Lioness did the research and here are just a few statistics about how women rock their companies:

• Women entrepreneurs bring in 20 percent more revenue with 50 percent less money invested.
• Women-led tech companies have been shown to produce a 35 percent higher ROI when venture-backed and 12 percent higher revenue than their male counterparts.
• While investors are chasing unicorns, zebras — profitable businesses that solve real, meaningful problems — are left by the wayside. With the right funding options, zebras could scale to billion-dollar enterprises.
• Women-led businesses have dominated private growth in America since 2007.
• Women are founding companies at a historic rate.

What’s the problem?

Despite all of the awesomeness women are experiencing as founders of companies that have real potential, the funding gap between men and women is getting worse due to the differences in the number of deals and the average deal size by gender, companies founded by women continue to be underfunded, underexposed and operating with limited resources.

If you’re a woman and/or a person of color, it’s like the cool kids on the playground are gathering together for a game of tag and you’re not invited to play. Is investment essentially high stakes gambling? And, why can’t women play? We’ll come back to that. Right now, let’s look at what makes women so darn good at startups anyway.

Leah Fessler reported at Quartz on the relationship between investors and female entrepreneurs. Here are three reasons she discovered women-founded businesses do better:

1. Women are subject to significantly more pushback when pitching their businesses. Investors routinely presume that women founders don’t have basic technical knowledge, and interrogate such knowledge far more often than they do when interviewing male founders.
2. Male founders are more likely to “overpitch and oversell,” BCG observes, while women are more conservative in their business projections.
3. The vast majority of male investors (92% of partners at the biggest VC firms in the U.S. are men) often have little to no familiarity with the products and services female entrepreneurs are pitching—especially in categories such as childcare or beauty. Often, you don’t like what you don’t know.

Clearly, female entrepreneurs are important and should be important to those who want to look at successful investment prospects. If women pitch better, get higher returns, do better when we have access to the right funding, aren’t they the clear winner to pick when investors are looking to gamble? Sort of. It’s hard to get picked if you’re invisible when investors are looking for players to draft for their teams.

Gambling On Women In Investor Portfolios

Dawn and I broached this on a “On Behalf of All Women,” podcast episode. Here’s a snippet of the candid conversation and transcription below:

Natasha: Because I think there’s a lot of bullshit that goes on.

Dawn: Oh, absolutely. There is and, you know, at some point you start to get the sense that — and women are feeling this and people of color are feeling this — that you know, there’s this big game going on and you’re just being told, ‘Hey, you can’t play.’ You’re not even being picked last for the dodgeball game. You’re just not being picked. You’re being told, ‘Hey, you’re not good for this game. Go over there and play hopscotch.'” 

Natasha: Exactly, which gets back to the gambling, right? Because, you know how they have like high rollers, or even like some of these illegal gambling rings, not anybody can just go play at these things. You have to meet these specs in order to sit at this table and if you don’t then you don’t get to play. And so there is that, well, we know that there is that. That’s one of the reasons that Lioness is here, to help female founders bring gender parity to entrepreneurship. Because, you know, they don’t want to gamble with us. And I think it’s interesting — and we talked about this on another episode — the fact that when you do gamble on us, you get more ROI. 

Dawn: Absolutely and there’s a lot of evidence out there that says that, a lot of research and, even in the more famous game of investors, Kevin Leary from “Shark Tank” would say, hey, I make more money off of female entrepreneurs when I invest in them. Even with that data coming out because some of the things that are kind of inherent in women work for us with entrepreneurship. So, we do take more calculated risks we — and I’m generalizing — but, some of those things that we can be critiqued for in the business world or in the professional setting: being a little more cautious, thinking things through a little bit more, um, those really work for us on the business end. So when you give us your dollars, we’re good stewards of those dollars. We’re very aware that we just got money from a person.

Is there a difference between investment and gambling?

Stephan A. Abraham, a writer for Investopedia who traded stocks for over 18 years, says “gambling is typically a short-lived activity, while equities investing can last a lifetime.” Here are a few other ways Abraham said to look at investing and gambling side by side:

• Investing and gambling both involve risking capital in the hopes of making a profit.
• In both gambling and investing, a key principle is to minimize risk while maximizing reward.
• Gamblers have fewer ways to mitigate losses than investors do.
• Investors have more sources of relevant information than gamblers do.
• Over time, the odds will be in your favor as an investor and not in your favor as a gambler.

If making educated decisions around investment yields a better return than gambling, actively seeking female founders makes good business sense. Besides, when it comes to Investing 101, diversification is key for good investor portfolios.