Female investors explain why it makes commercial sense to back female founders – and how to get an investor's attention

An equal world is an enabled world. This year’s International Women’s Day reminds us it is up to each of us to be responsible for our thoughts and actions each day, every day. #EachforEqual. A useful reminder, should such a thing be needed, for female founders and investors of both genders.  

When it comes to business, the argument for equality is pretty compelling. Much has been written about the benefits women bring to businesses including:

• Improved innovation
• Improved creativity
• Improved understanding of customer needs to the boardroom table
• Improved financial performance

Let’s get really clear what “improved financial performance” means in startups with female founders. 

The Boston Consulting Group (BCG) calculate that for every $1 invested, female founders return 78 cents compared with just 31 cents from male founders. So female founders offer investors 2.5x more return than their male counterparts! A compelling figure for any investor wondering which startup to back.

For investors, backing female founders isn’t about doing the right thing – or being seen to do the right thing – it’s about getting the best return on your investment. It’s a commercial decision.

And it doesn’t stop there.

BCG also found that startups founded (or co-founded) by women generate 10% more cumulative revenue over a 5 year period than those founded or led by men. (Source: Boston Consulting Group, Why Women-owned startups are a better bet).

All this is set against an operating environment where startups with female founders gain less investment than their male counterparts. 

In the US, female founders attract just 2% of equity funding despite owning 38% of businesses in America (Source: Harvard Business Review, Male and female entrepreneurs get asked different questions).

In the UK, equity investment for female founders drops to just 1.5% of all investments (Beauhurst, Female Entrepreneurs)

Women receive less investment but provide a better return on investment. Fact.

 Rather than rant about the ridiculous inequality, let’s think instead about how each of us – both male and female – can respond to the situation.

For investors (male and female) this feels like a no-brainer. All the evidence says back female founders.

If you are a male founder with a male team, then apart from recruiting female team members (which budget may or may not let you do) recruiting female investors can be a great way of improving diversity in your senior team – and unlocking the many benefits that women bring to startups.

If you are a female founder looking to attract investment, take heed of The Diana Report (source: Babson College) which explains that female founders are twice as likely to attract investment if there is a women involved in the investment decision. For female founders, attracting female investors significantly improves the likelihood of getting investment.

But how do you attract a female investor?

I recently had the pleasure to lead a discussion on this very topic with a talented line up of female founders and investors, who shared some wonderful insights:

Your startup must be “investor ready”

The first thing to get clear is that investors – whatever their gender – want similar things. The business needs to be proven. Most angel investors will expect you to demonstrate traction. Female investors are no exception. The baseline is still the baseline.

Make no mistake about it, investors expect a return on their investment. For all that female investors want to support female founders this is not philanthropy. This is about making money. As Marla Shapiro, who runs the angel syndicate HERMesa which backs female founders, put it 

“We still expect a strong ROI”

So be ready to discuss your financial forecast and expect a discussion about valuation and exit.

Expect a discussion about valuation

Sally Graham, who runs Fern Equity which matches investors with founders, agrees that valuation is an important but tricky topic.

“For most startups there is no “right” valuation. It's a discussion. A negotiation. As a founder you need to be clear about the value you have created and be ready to discuss and shape this with an investor.”

Do your research to find the right investor for you

It has been said that female investors are more likely to back female-led businesses because they understand the needs of businesses targeting women with products and services specifically designed for women. That may be true but, like all angel investors, female investors are individuals. They will have their sector preferences, their own views on when is the right time (or stage of development) to back a business. They will also have personal interests and preferences that influence their investment decision. Don't rely on assumptions or stereotypes, do your research and chose female investors whose preferences match your business model. To quote Marla Shapiro again

“I'm a women who happens to like investing in enterprise software and green technology.”

Expect to be questioned and challenged – and be ready for the conversation

Another urban myth is that men look at the big picture and women the detail. Again, there may be elements of truth in this but generalisations are dangerous.

Thea Messel, who runs the fund Unconventional Ventures which supports underrepresented founders, says

“I look at the big picture first. What is the big problem that the startup is solving? Then I look at the team. Are they innovative with their use of resources, are they resilient and is there a good chemistry between us. Are we aligned in wanting the same things?”

So is there anything that makes female investors different to male investors?

A recurring theme in our discussion was the importance of being yourself.

One female founder shared how she had been told to “be more like a man” (ironically by a female investor). The female investors I spoke to strongly disagreed with this sentiment. They did not agree that founders should apologise for who they are. These female investors wanted to spend time getting to know the founders of businesses they were thinking of investing in. Building relationships and understanding the motivations of founders – as business people and as individuals. They urged founders to do the same with them. Openness and honesty were the watch words. When a female investor backs a founder they expect a long and fruitful relationship. They urged founders to think in similar terms. Relationships built over the long-term clearly matter.

For these female investors, backing female founders isn't a beauty parade with winners and losers. It isn't about using the promise of money to exert influence. Nor is it about pressurising founders into a quick decisions least an offer “expire”. Backing female founders is about finding the right partnership for the long haul. It's about equals aligning around a purpose. You must decide for yourself if that is an exclusively female trait – or just a cultural disposition.

Whatever your view, keep in mind the maxim #EachForEqual. Change starts with each of us, every day.

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