Close your eyes and think of a famous tech founder. Did you think about Elon Musk, or Mark Zuckerberg, or Reid Hoffmann, or Jeff Bezos? Let’s be honest, that question often conjures up the image of a man. While that’s not an ideal we strive for, it’s fair given that as of 2022, a survey (covering 67 countries) found that the overall average of male founders is 85%, and in the EU, data from 2023 shows that 98.2% of all venture capital funding goes to men.

If you look at the world of startups and VC, especially in terms of sheer numbers, it’s very easy to come to the conclusion that investments are going to the right place — we see profitable, “traditional,” male-owned companies soaring, making billions of dollars and creating millions of jobs — so why should we change a system that’s working and start syphoning some of those investment dollars into women-led companies? Well, if we take a more in-depth look at growth and innovation numbers, especially over time, we see a different story emerge.

Simply put, despite often receiving lower funds, businesses founded by women ultimately deliver higher revenue—more than twice as much per dollar invested—than those founded by men (research by BCG, 2018). Other research by the Kauffman Foundation shows that private technology companies led by women are more capital-efficient, achieving 35% higher ROI, and, when venture-backed, a 12% higher revenue than startups run by men.

Excitingly, we’re seeing more and more companies with strong women at the helm creating waves and drawing focus to the fact many women-founded companies are no-brainer investment cases.

Bumble is a perfect example: created from a place of real frustration, Whitney Wolfe Herd took her vision for a better use of dating Apps, and turned it into a billion-dollar brand, taking the company public when she was just 31.

Closer to home, Clue’s co-founder Ida Tin coined the term FemTech to describe her menstrual tracker app, Clue, one of the first of its kind. FemTech is now one of the fastest-growing and most exciting health verticals. For instance, in July 2024 competitor to Clue, UK-based Flow, raised a $200 million-plus Series C from General Atlantic at a $1 billion-plus valuation, making it the first purely digital women’s health app to become a unicorn. According to Statista, FemTech topped $50 billion in 2021 and is expected to grow to $103 billion by 2030. Precedence Research estimates a market value of $108.8 billion by 2032.

What both women and many many more women entrepreneurs, have in common, is that they aren’t “traditional male founders” who come from the standard background that VCs are looking for. What women bring to the table is a new perspective, a clear understanding of a huge (mostly unaddressed) market segment, and often a longer-term, sustainable vision for how their product will improve society.

See our article: Is the gender gap a myth? here

Thanks to these increasing number of women-led company success stories, we see more and more VCs are looking beyond their traditional investing patterns, and paying attention to diverse founding teams (way to go, ‘trendsetters’, thanks for paving the way!), because ultimately, it leads to exceptionally strong returns, and what VC isn’t interested in that!

So with this in mind, we wanted to take a deeper look and speculate a little on how it is that companies with at least one woman founder make significantly higher returns. These are – what we believe – are the top 5 reasons women-led companies can generate such returns:

1. Diverse perspectives: Women bring different and often overlooked perspectives and problem-solving approaches, leading to more innovative solutions and better decision-making. This diversity can result in more effective strategies and products that cater to a broader market.
2. Effective risk management: Studies suggest that women tend to be more cautious and thorough in their approach to risk. This can lead to more sustainable business practices and long-term planning, contributing to higher returns.
3. Market understanding: Women entrepreneurs often have a better understanding of products and services targeted at women, who are major consumers. This insight can lead to the creation of products and services that better meet market needs.
4. Collaborative leadership: Women leaders often foster a collaborative and inclusive work environment. This can improve employee satisfaction, retention, and productivity, ultimately boosting company performance.
5. Resilience and adaptability: Women entrepreneurs often face more challenges and barriers in their journey. Overcoming these obstacles can make them more resilient and adaptable, qualities that are crucial for business success.

Diversity in leadership is not just a matter of fairness or social justice, but a critical driver of financial success and innovation, and we need to recognise that women have unique strengths to bring to entrepreneurship. We’re beginning to observe hints of a systemic shift as more venture capitalists begin to appreciate the financial benefits of investing in diverse teams. This shift is gradual but pivotal, as it could lead to a more inclusive and innovative business environment where diverse ideas and approaches are valued and funded. We’d encourage more VCs to broaden their criteria and support a wider range of entrepreneurs, ultimately benefiting the entire ecosystem with enhanced innovation and financial returns.

GENDEX’s research team is diligently collecting and analysing data to demonstrate why investing in diverse founding teams will prove to have better ROI. We’re eager to share their findings with you soon. For more updates, follow us on LinkedIn, sign up for our newsletter, and subscribe to our YouTube channel.

Written by Emily Hoffschmidt-McDonnell, and researched by Rachel Bolte.

See our sources here