Daily Magazine

Supporting women in open technology and culture...

In 1999 my colleagues and I led a research initiative, the Diana Project, that examined venture capital funding in women entrepreneurs. We found that approximately 5% of all US businesses receiving venture capital had a woman on the management team. This finding was surprising given the large number of businesses owned by women and the huge amounts of money being raised for venture capital at the time.

Today my colleagues and I from Babson College, released a new report that updates this earlier study.

Our report, sponsored by Ernst & Young, is the first comprehensive analysis of funding of companies with a woman on the team in more than a decade. Have women entrepreneurs made progress in attracting venture capital? Yes and no.

On the positive side – we see progress in that the number of early stage companies that have a woman on the executive team has tripled from 5% to 15% in the past decade. This is good news!

But on the other hand, we found that 85% of the 6,793 businesses funded by venture capital between 2011-2013 venture capital funded businesses had no women on the executive team at all. Further, only 2.7% of these companies had a woman CEO. Statistics show that women entrepreneurs are a significant force in the US Economy, majority owners of 36% of all US businesses. The fact women CEO’s comprise such a tiny percentage of venture capital funded companies is very puzzling.

So why do companies with a woman on the team comprise such a small percentage of investments by venture capitalists?

One argument suggested is that businesses with women don’t perform as well. But, our data shows the opposite– we found that business with women entrepreneurs on the executive team perform just as well or better than those companies led by all males!

Another reason offered is that women entrepreneurs are not well connected to the venture capital industry. Our data does show this to be the case. In fact, the number of women partners in US venture capital firms has declined over the past three years from 10% to 8.5%. Based on the argument that women investors would be more likely to invest in women entrepreneurs, the declining number of women investors is a concern.

However, another important finding is that venture capital firms with a woman partner are more than twice as likely to invest in companies with a woman on the team, and more than three times more likely to invest in companies with women CEO’s (58% of the firms with women partners versus 15% of the firms without women partners).

These key findings suggest that there is a huge opportunity for venture capital firms to create and capture more value if they seek and promote women partners who can connect them to qualified women entrepreneurs. Investing in companies with a woman CEO or woman entrepreneur on the team is a good investment!