Despite the growing conversation around diversity, women remain significantly underrepresented at the partner level in VC. This disparity is even more striking when we consider the superior returns women investors consistently generate.

A study from 2023 revealed that VC funds in Europe, where a larger number of women in top leadership, saw a higher annual internal rate of return (IRR), with teams predominantly composed of women outperforming all-male teams by a notable 9.3 percentage points. The study also showed that, for every 10% increase in female representation on senior management teams, there was a corresponding 1.3 percentage point boost in the fund’s IRR. So with these significantly higher return rates, what is it women investors are doing differently and how are these decisions changing the investment landscape?

How women investors’ unique strategies are driving higher returns

We see slight differences in the way that men and women look at investment (on average). There are three main areas in which we see enough of a difference in decision-making to make a strong assumption that these differences are what are driving the increased financial returns.

1. Risk aversion & long-term thinking

Research shows that women investors tend to be more risk-averse (something that is traditionally seen as negative, but incorrectly so, as this approach leads to greater resilience in unstable markets and higher returns over time, particularly in industries facing global uncertainty) and are more likely to adopt long-term investment strategies compared to men, who tend to favour higher-risk, shorter-term investments.

For example, research from N26 highlights that nearly half of female investors reported being less likely to take risks after the pandemic, citing long-term financial stability as a priority. Additionally, women often display more caution in volatile markets, and tend to align with broader investment strategies focused on sustainability and consistent returns rather than short-term, high-risk investments that have the potential for higher returns.

Beyond risk aversion, another factor contributing to the success of women investors is their tendency to favour diverse portfolio strategies.

2. Diverse portfolio preferences

Women investors are more likely to back businesses with diverse leadership, and these tend to have more risk-mitigation practices in place. A report from European Women in VC found that female investors tend to allocate more capital to businesses with women founders or co-founders, specifically companies founded or co-founded by women received 49% more investment from female VCsthan from their male counterparts.

Marie Campagne, Head of Grow with SAP for Scaleups EMEA, shared in the European Women in VC report 2024 titled “Beyond returns: Venture and Growth investing fueling sustainability and societal change”, that the reason this diverse portfolio investment strategy is exciting – and beneficial within Europe, as an example – is because: “This rich mix of cultures and perspectives drives innovation and collaboration across borders. It positions Europe to achieve technological sovereignty, as its startups develop groundbreaking technologies and sustainable solutions. Embracing this diversity will lead to impactful advancements, strengthening Europe’s role in global tech.”

3. Focus on sustainable and impact investments

Women have become significant drivers of sustainable and impact investing. The European Investment Fund found that women are more likely to prioritise ESG factors when making investment decisions, and data from the UK and Europe shows that 57% of female investors are likely to choose ESG-focused funds, compared to 43% of men(while in the US the number is 42% versus 35%).

Globally, women investors are showing a preference for ethical investment strategies, with many prioritising social impact alongside financial return. Why is this important for the market overall? Simply put, ESG-driven investments are increasingly outperforming traditional investments, particularly as consumer and investor demand for ethical practices grows. For instance, BlackRock reported that their sustainable investment strategies were not only aligned with client preferences but also delivered competitive performance, and a Morningstar study found that in 2020 sustainable funds outperformed their conventional counterparts, specifically 77% of sustainable equity funds and 79% of sustainable bond funds had higher returns than their non-sustainable peers.

What’s the broader impact?

Why is it important to add a new generation of women investors into the tech ecosystem? There’s more to be said for bringing women into your investment team that goes beyond just ticking a diversity box…

Boosted economic growth

McKinsey’s 2020 report “Women as the Next Wave of Growth in US Private Markets” indicated that if more women participated in the VC ecosystem globally, it could result in as much as $4.5 trillion in new global GDP by 2030. The inclusion of women investors, especially in emerging markets, is seen as a critical factor for sustained economic growth.

Better outcomes for women entrepreneurs

Research from Kauffman Fellows suggests that women VCs tend to invest more frequently in women-led startups, contributing to greater diversity in funded ventures. In Europe, all-female founding teams received just 1.1% of all capital invested in 2022, but this percentage was higher in funds managed by women-led VCs, where women VCs invested in nearly double the number of female-founded startups compared to their male counterparts, particularly in early-stage funding rounds.

Financial performance

Women investors tend to outperform male investors in several areas, both by generating higher financial returns over time and being more consistent with their return results. One way we can see this is through assessing internal rates of return (IRR), and studies show that portfolios led by female VCs often generate higher IRR, in addition to being better at identifying undervalued businesses. For example, a First Round Capital study revealed that companies with women founders performed 63% better than those with all-male founding teams.

Investment in underserved markets

Women investors are also known to back companies that address needs overlooked by the broader, more traditionally male VC market. Healthtech, Femtech, and sustainable solutions have seen increased funding as a result, where there is a huge potential for high ROI for investors. According to a European study, 60% of women investors were likely to fund startups in sectors traditionally underfunded, such as healthcare, sustainability and education.

Shifting the status quo; there’s more to be done

While there are significant shifts in the space (in fact, survey data shows that 47% of European VC firms expect an increase in female GPs within their ranks over the next five years), we still see barriers and a slow pace of change. One of the most significant challenges is for women who wish to raise capital for their own funds; a 2022 European study showed that female VCs manage only 9% of all VC assets. We are also seeing a lack of women in leadership positions in VC globally, and in Europe, only about 7% of managing partners at European VC firms were women as of 2023 (this mirrors trends in the US). Additionally, while more women are trying their hand at investing, the number that remain as investors over time is small; for instance, the number of active female angel investors fell by 42% between 2022 and 2023.

What this tells us is that there are still cultural and structural barriers to overcome to ensure we can both attract and retain women in the investment space, which – as we can see from the data – benefits returns and therefore societal growth overall.

In short, the rise of female investors in venture capital (VC) and other asset classes has led to shifts in investment priorities, decision-making processes, and portfolio outcomes. Women investors are undoubtedly reshaping the investment landscape in Europe and globally, thanks to a shift toward long-term, impact-focused, and diversity-driven investments, which are a departure from the traditional profit-maximisation strategies seen in the past. The entry of more women into the VC space is expected to accelerate these trends, creating a more equitable and dynamic investment environment. However, challenges remain, especially around access to capital and decision-making positions. Addressing these disparities could unlock significant economic potential and further diversify the investment landscape.

Increasing the number of women investors is not about excluding men; it’s about expanding the investment landscape to include diverse perspectives that drive better returns and create new opportunities. By fostering a more inclusive environment, we can unlock untapped potential, benefitting both investors and society as a whole. GENDEX’s research team is diligently collecting and analysing data to demonstrate why investing in diverse founding teams will prove to have better ROI, and a part of ensuring more women-led companies are invested in means that we need to see more women investors. We’re eager to share their findings with you soon.

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

See our references here