Business

Large gender gap persists in venture capital deals, study finds

Women entrepreneurs have made progress obtaining venture capital, yet a wide gender gap persists, according to a new study released by Babson College on Tuesday.

The amount of early-stage investment in companies with a woman on the executive team has tripled to 15 percent from 5 percent in the last 15 years, the study found. Yet 85 percent of all venture capital-funded businesses have no women on the executive team and only 2.7 percent of venture capital-funded companies had a woman CEO, according to the study titled “Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital.”

The study was conducted by Babson professors leading the Diana Project, a program founded in 1996 to research women-led businesses globally. The study analyzed 6,793 unique companies in the United States that received venture capital funding between 2011 and 2013.

Among other key findings:

▪  Businesses with women entrepreneurs perform as well as or better than those led by men. Businesses with a woman on the executive team are more likely to have higher valuations at both first and last funding (64 percent higher and 49 percent higher, respectively).

▪  Venture capital firms with women partners are more than twice as likely to invest in companies with a woman on the executive team (34 percent of firms with a woman partner compared to 13 percent of firms without a woman partner) and more than three times as likely to invest in companies with women CEOs (58 percent of firms with women partners versus 15 percent of firms without women partners).

▪  The total number of women partners in venture capital firms has declined significantly since 1999, dropping to 6 percent from 10 percent. Just 139 of the country’s 1,562 venture capital firms had women partners, at the time the Babson report was compiled.

“Only a small portion of early-stage investment is going to women entrepreneurs, yet our data suggest that venture capital-funded businesses with women on the executive team perform better on multiple dimensions,” said Candida G. Brush, Babson professor, report author and Diana Project co-founder. “Enormous untapped investment opportunity exists for venture capitalists smart enough to look at the numbers and fund women entrepreneurs.”

The report included several recommendations for the venture capital industry, including examining the reasons why so few women enter or stay in venture capital roles, showcasing the successes of growth-oriented, venture-funded women entrepreneurs and doing more to seek out early-stage, women-led businesses across the country.

“For years, it was believed that women entrepreneurs needed to change their approach to networking, pitching or industry sector in order to secure venture capital,” said Patricia G. Greene, a co-founder of the Diana Project and the Paul T. Babson Distinguished Professor of Entrepreneurial Studies. “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. The tremendous work within the entrepreneurship ecosystem to support and foster growth of women entrepreneurs, and the findings of this study, demonstrate it is not the women who need fixing; the model for venture capital that has been in place since the 1980s simply does not work for women entrepreneurs.”

The full report is available at www.babson.edu/DianaProject.

Follow @ndahlberg on Twitter.

  Comments