Businesses need more female investors. How this happened.

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According to the U.S. Census Bureau, 1.1 million women-owned businesses have employees and 10.5 million women-owned businesses have no employees. But by 2021, the more than 11 million companies owned by women have received only 2 percent of available venture capital—the lowest percentage since 2016.According to PitchBook, the number is actually $6.4 billion, which sounds like a lot of money before we look at the total VC investment (VC) dollars invested in 2021: $330 billion in the U.S.

However, when female founders partnered with male co-founders, these teams realized 15.6% of VC funding. That’s a depressing message for the talented young women budding in business today. Additionally, we know that when an all-male team adds a woman, the business increases profits for its investors by 65%. It’s hard to justify these two statistics: more women on the team = more investor returns. But under female leadership, the business is unlikely to receive funding. The news here is depressing. Can a woman join the team and get the job done, but not be the main founding partner? Of course, from a woman’s point of view, this can’t be true. But is it true that most investors are men and we all tend to back investments we are familiar with?

Related: Where are all the female investors?

Why do women get less funding than men?

One theory is that most general partners in VCs, and many angel investors, are still men. One woman who is passionate about investing has compared angel funds to venture funds. It gives us a glimpse at the different approaches to the two investing, which may indicate where women investors feel most comfortable.according to New York Times‘DealBook, as of the end of 2019, 12% of VCs’ general partners were women, and there were 740 female angel investors. Today, women make up 15 percent of VC firm general partners, and there are now about 1,000 female angel investors. Becoming a general partner in a venture capital firm is a bigger professional commitment than investing personal funds in angel funds, angel networks, or investing directly in companies through individual angel investments.

The growth of angel investing among female investors outpaced that of venture capital funds, which affected the results for female founders. Angel investors fund women at a much lower rate than male-dominated companies, but much higher than VC firms.

Research shows that women seek angel investment much less often than men, but are equally likely to receive investment. why is it like this? One possible conclusion we can draw is that when pitching to angels, female founders encounter more female investors who tend to support them. Somewhat optimistically, angels tend to invest in the early stages, so these funds should help propel women-owned businesses down a trajectory toward high growth. This could mean more VC funding in the future, or a high-growth exit event that actually targets more women.

Related: Meet one of the world’s few self-made female billionaires. She wants to teach you how to play games — literally.

Another theory is that the types of businesses women start up may not be the types of businesses that VCs and angels are interested in. In general, women start their own businesses locally, are part of a community, and solve problems that are important to them. Examples might be service industry solutions in healthcare, pet care, or household goods. Overall, men have traditionally focused on the greater influence of local ideas and leaned towards tech and manufacturing. This may be due to the previous lifestyle where the man was the breadwinner and the woman had a hobby (part time) that brought in some extra cash. Of course, we’ve moved beyond these archaic gender roles.

Women may also shy away from this level of funding. Maybe it’s the fear of stats, the fear of being rejected, and losing time and focus on business growth in pursuit of this level of funding. I’ve seen women spend months preparing a pitch only to be turned away in the first round while wasting precious time running her business. I have also seen women advocating about issues facing their businesses and feeling grilled by investors. Men pitching tend to have growth-oriented problems. In these cases, women are left in limbo, struggling to recover and show confidence in their careers.

However, if a woman sees this as the path she wants to take to stimulate business growth, she should have an equal chance of successfully securing capital. In turn, there is an opportunity to market to more women, which theoretically improves her chances.

What makes women investors unique?

When building teams for high-growth businesses, diversity of thought, background, ethnicity, gender, and experience will create a higher propensity for success. Likewise, having diverse investors is a success factor in investor returns as well as the well-being and growth of a company’s pitch. Female investors may have different perspectives and skill sets, and may have a better relationship with a female founder marketing her business.

Women and men still have very different career options and experiences, which combined with their male counterparts provide a holistic view of the pitching company’s value proposition. Having female investors will also share knowledge and mentorship with other female founders will increase the likelihood and returns for investor success.

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What would be the impact of more female investors?

By the numbers, adding more women to the investment pool can only be a positive. Whether as an angel with their own funding or as a general partner in a venture capital firm, the result will be more women-founded companies that have a higher rate of success in securing early- and mid-stage funding. If their business grows from early-stage investments, we’ll start to see more women-owned businesses founded by men on the VC table. It’s an abundance mindset — the stronger the business that gets funding, the more our economy will grow, regardless of the gender of the founder. The more female founders see other women getting funded — the more people will enter the billion-dollar club, like Sarah Blakely.

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