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Why Tech Startups Led by Women Are A Better Bet To Invest In

Why Tech Startups Led by Women Are A Better Bet To Invest In

Did you know that women-led businesses perform better, with women-led teams getting a 35% higher return on investment than all-male teams? “Women-led startups outperform those led by men in almost all areas. They are faster to adapt, more solution-oriented, more profitable, provide higher-quality customer experience, and are more socially responsible.” [Harvard Business Review, 2021]

So then why do startups founded solely by women or co-founded by a woman only represent 25.3% of all deals in the U.S? Moreover, while that statistic is already concerning, in enterprise software startups, that percentage drops to an astonishing 1.9% [Forbes, 2022].

There are many reasons for this inconsistency, but we have found four that seem to explain it:

Women face more challenges and resistance in their presentations 

For example, during their presentations, women are asked to demonstrate that they understand basic technical knowledge. And often, investors simply assume that women founders don’t have this knowledge. If a woman is presenting with a male partner, they assume he knows the technical part, so they ask him all the technical questions. Also, female founders are hesitant to respond directly to criticism during their pitches. If a potential investor makes negative comments about the pitch, she is more likely than a man to accept it as legitimate feedback, rather than contradict the investor and make her case. 

Women are often afraid to ask for too much money

Male founders are more likely to overpitch and oversell. Women, on the other hand, tend to be more conservative in their projections and may simply ask for less than men.

Sometimes, male investors can’t relate

Women seek to offer products and services for other women; that they are familiar with and have experience with, leading to male investors sometimes not understanding these needs or the potential value of their ideas and therefore not wanting to invest.

Only about 12% of decision makers at investor firms are women

And most firms still don’t have a single female partner on the team. This affects because when women investors do make the decisions, they’re twice as likely to invest in female founding teams. Bringing more women into these organizations could help broaden the lens of potential investments and reduce the investment gender gap. 

About 90% of startups fail, so these organizations need to contemplate that maybe success would be higher if they judged more on competence and a little less on gender. The tech world would be in a much healthier place if the decisions were taken by the great potential of ideas presented to them. Of course, all investing involves risks, and we’re not saying to consider and agree to invest in a project only because a woman leads it, but there is a big change needing to happen to close the investment gap and the unfairness in investment decisions.