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Females Dealt Unfair Hand in Raising Capital
Investors might profit from an open mind 
By: Bob DiMeo, Managing Partner
Dollars have rushed into private investments at a red hot pace but an important segment is largely being left out of the party: Female run firms and that might be a bad thing for investors. 

Cravings for private investments are nearly insatiable in recent years with fundraising for venture capital growing 18 percent annually since 20151 and total private raises reaching all-time highs.
What about the ladies?
Even with staggering sums invested, firms with females at the helm struggle to raise money across many sectors and Venture Capital offers a glaring illustration. Female founded companies received just 2.2 percent of total VC money invested last year, yet women own 40 percent of U.S. businesses2. Think about that! Of $130 billion in VC investments, less than $3 billion found its way to the ladies. Those figures are so disproportionate that you may wonder if 2018 was an anomaly. But history shows that female businesses regularly draw just a sliver of capital compared to male run counterparts.
Why do companies with females at the helm attract far less capital? One theory might be that woman simply don’t generate sufficient return on investment, however, that notion is easily disproved. Evidence abounds, but a far-reaching look at more than 20,000 firms in the Peterson Institute survey relevantly shows that companies where 30 percent of leaders are women have, on average, profits that are15 percent higher. 

So if female leaders perform as well, or better, why are they attracting only 2 percent of funding? Columbia Business School’s Dana Kanze feels she has the answer. “I got to thinking: what if this funding gap is not due to any fundamental difference in the businesses started by men and women? What if women get less funding than men due to a simple difference in the questions that they get asked?” Dana’s extensive analysis demonstrations that while there is no variance in the way entrepreneurs present their companies, there are vast differences in questions posed to female founders.  

Men and Women field different questions
In examining nearly 2,000 exchanges between investors and entrepreneurs, Dana Kanze discovered an alarming distinction: male entrepreneurs are asked promotion questions while female entrepreneurs are asked prevention questions. So the guys might be asked how big their potential market is or what additional products they envision. While females receive questions such as how confident are you in your supplier or how would you manage a market downturn.  

The stark contrast in questioning surprised me but didn’t at all faze my wife (a CPA with public accounting experience). She noted that it’s very common for men to be asked about potential while women are asked about results, especially relating to promotions. You can learn more about Dana Kanze’s study in her TEDx Talk here.

Can investors benefit from Gender Bias?
Nonprofit, institutional and individual investors routinely attempt to exploit anomalies in pursuit of profits. Capitalizing on gender bias might be another path to profits, but what would that look like? In broad public markets you can begin by simply gaining an appreciation for which companies have meaningful female leadership. David Venn at the University of Michigan states “Gender lens investing is an investment approach that seeks to realize a financial return while also considering the benefits of an investment to women and girls.” Access his insights on How to Boldly Implement Gender Lens investing.

And circling back to private markets, Harbinger Ventures founder Megan Bent says “Less dollars allocated towards women has created favorable effects for investors and kept valuations somewhat under market. The bias has left many very attractive categories under-innovated and under-funded which supports attractive entry price points and upside.” Megan positions her firm to provide growth equity to the next generation of female entrepreneurs. 

Possible Profits…Definite Awareness
Gender lens investing has the potential to provide investment committees as well as individual investors with higher returns… and it all begins with gaining a better understanding of the investment landscape and opportunity. See our third release in a series on Mission Aligned Investing and as always, please feel free to contact me or any of the professionals at DiMeo Schneider & Associates, L.L.C. for assistance.  


This does not represent a recommendation for any specific investment strategy or offering. Information obtained from a variety of sources deemed, though not guaranteed, to be accurate.
1McKinsey & Company Global Private Markets Review 2019
2PitchBook and State of Women-Owned Business report. American Express
This report is intended for the exclusive use of clients or prospective clients of DiMeo Schneider & Associates, L.L.C. Content is privileged and confidential. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources which are believed though not guaranteed to be accurate.  Past performance does not indicate future performance. This paper does not represent a specific investment recommendation.  Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice.
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