Research shows that startups led by women deliver outstanding returns but still too little capital is flowing to female led businesses. Fiona Boyd, CEO of Heads over Heels, a not-for-profit supporting high-potential women-owned businesses, explains why its vital for Australia’s future prosperity to empower more female entrepreneurs.
Significant progress has been achieved towards increased diversity and representation of women on boards, and at executive level. Until recently however, there has been less attention given to the promotion and support of female entrepreneurs.
Just as it makes economic sense for the diversity of the global marketplace to be reflected in those who lead companies, it also holds that if women can fully participate as entrepreneurs, the economic benefits should follow.
Entrepreneurs create jobs and enrich societies by creating solutions to social problems. They also introduce innovations, launch new industries and revive mature ones. With the looming global employment challenge, women need to fully participate in these economic activities.
[A] study conducted by Harvard Business School, found that when men and women pitched the same idea, investors were 60 per cent more likely to invest when a man proposed it.
The local economic imperative is equally as confronting when we consider the disruption that is occurring across every industry sector in Australia. The Committee for Economic Development of Australia has reported that over 5 million jobs, almost 40% of Australian jobs that exist today, have a high likelihood of disappearing in the next 10-15 years due to technology advancements.
It will be the current small start-ups – the businesses of the future, that will help create new employment opportunities and potentially replace some of the existing jobs lost through industry change and disruption.
There is evidence that startups led by or co-founded by women generate significantly higher returns. A recent article in The Australian Financial Review highlighted a venture capital group which examined 300 start-up organisations over a 10-year period, and concluded that those companies with either a female leader or co-founder performed 63% better than companies founded only by men.
Other research conducted by Dow Jones, Kauffman Foundation, and the SBA Office of Advocacy, have reported similarly high levels of return from female-led companies, including those in technology sectors. Another study analysing a dataset from 350 micro finance institutions across 70 countries indicated lending to more women was associated with lower write-offs and lower portfolio-at-risk.
[C]ompanies with either a female leader or co-founder performed 63% better than companies founded only by men.
And yet, as the article noted, when it comes to achieving the critical support and financing needed to grow their businesses, it appears that women are not being given a ‘fair go’. Babson College in the USA discovered that over a two-year period, companies with a female Chief Executive received $US1.5 billion in venture capital, while companies led by men received $US49.3 billion. Another study conducted by Harvard Business School, found that when men and women pitched the same idea, investors were 60 per cent more likely to invest when a man proposed it.
One of the most important determinants of entrepreneurial success is access to business networks, however women are much less likely than men to have access to a broad network of financiers, mentors, advisors, clients and suppliers – all connections which they need to grow their businesses.
This may be changing as women seek to build and leverage their own entrepreneurial ecosystem, with more women moving into angel investment activities in addition to investment banking and venture capital. According to the Centre for Venture Research, as at 2014, 26% of all angels were women, and 36% of all companies seeking funding were women, both of which had increased substantially from previous years.
Women angels also sometimes sit on the boards of the companies they invest in. As these companies grow larger, women will get the experience needed to also sit on larger company boards, which should in turn help create a virtuous circle to further increase diversity. As Geri Stengel notes, women angel investors can do more than simply crack the ‘glass ceiling’ that prevents women from getting the capital they need, “women angels fly right through it”.
For smart investors and business people willing to back women entrepreneurs, there are significant untapped opportunities.
This is an edited extract from the AICD’s latest quarterly Gender diversity progress report.
For more information on the work of Heads over Heels in increasing the representation of women in entrepreneurship, visit their website.
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