Women-Led Businesses Outperform
This is one of my favorite subjects and the underlying impetus to start True Wealth Ventures Fund 1. While I was the executive sponsor for a Fortune 500 company’s global women’s form, I became familiar with the studies showing that large companies with more women in leadership performed significantly better financially. For example, these companies can enjoy 41% higher return on equity and 56% better operating results according to a ground breaking McKinsey study. One of my favorite studies shows that Fortune 500 companies with at least three women board directors (WBDs) for at least five years, outperformed those with zero WBDs by 84% return on sales (ROS), 60% return on invested capital (ROIC) and 46% return on equity (ROE).
Then, after shockingly realizing I had never personally interacted with a woman in venture capital at a portfolio company or on a deal, I started looking into the small company and venture funded start-up numbers to see if the performance numbers looked similar. It turns out that they do. In fact, research shows that gender diversity is particularly valuable where innovation is involved, and we see that women-led private technology companies achieve 35% higher return on investment. Furthermore, when these companies are venture-backed, they bring in 12% higher revenue than male-owned tech companies.
Other research shows similar results for venture-backed organizations that are the most inclusive of women in top management, to the tune of 34% higher total return to shareholders. These women-run companies also achieved comparable early-year revenues, using an average of one-third less committed capital. A Dow Jones study shows that successful startups have twice as many women in senior roles than unsuccessful startups and that firms with just one or more women executives are more likely to turn a profit, go public, or sell for greater money than raised. Analyzing U.S. Census data to look more generically at women-owned businesses overall, we see 47% higher growth in women-led companies with revenue greater than $10 million than in all companies with revenue greater than $10 million.
Let’s take just a quick look at the implications for venture capital (VC) fund performance, too. In my last blog I referenced the fact that there are only 4.2% of women in the deal making, partner level jobs of venture capital firms. The number of women in VC seems to have a direct correlation to the amount of VC money going to women-led startups, with women CEOs receiving only 3% of total VC dollars ($1.5B of 50.8B from 2011–2013).
“I don’t have a single company run by a man right now that’s outperformed the ones run by women.” — Kevin O’Leary
So, how did these risky firms investing in women led businesses fare? An SBA sponsored study that used all investments by U.S. based VC firms in U.S. based companies between 2000 and 2010 found that indeed, VC firms that invest in women-led businesses performed better than all men-led businesses. No surprises there given the underlying numbers. Yet, Shark Tank’s investing star Kevin O’Leary recently surprised himself when he discovered that the companies returning on his investments were all led by women and he didn’t “have a single company run by a man that’s outperformed the ones run by women.”
For more facts about women-led businesses and women in venture capital, follow Sara on Twitter here, or visit the True Wealth Ventures website .
