Starting a business isn’t easy for anyone but for women entrepreneurs it can be especially tough.
That’s because the single biggest obstacle they face when starting and growing a business is the one thing all business need–access to capital. In fact, Gallup conducted research in 2014 that identified the top ten talents that lead to business success. The 11th, it said, was gender. According to Gallup, even though the number of businesses being started by women is increasing each day “those businesses tend to be smaller, employing fewer people and generating less revenue than other firms.” Female business owners are also less likely to seek financing and less likely to receive it when they do.
Yet women founders, board members, executives and directors actually increase the chances that a venture-backed company will be successful, and that translates to an exit such as an IPO, being sold for more money than the business raised or simply operating profitably and growing.
So why don’t women-led businesses get as much funding as ones started and run by men? One reason is that venture capital firms, especially those that do early stage investing, tend to be attracted to technology and biotechnology companies, industries that have the potential for exponential growth fairly quickly. Those industries, however, are also light on women. Those that are traditionally heavy on women, like consumer products and education, need substantial revenue before they can get the attention of most VCs. And service businesses, also an area more heavily populated with women, tend to garner very little early stage investment.
Business in those industries may also require slower, more careful growth and even if that is the best course of action, it’s generally not what angels and VCs want. Yet things are changing, thanks to groups that support female entrepreneurship and corporate leadership, like the angel investment network Golden Seeds, based in New York City.
Golden Seeds is one of the largest and most active networks of angel investors in the country, and it has been funding and mentoring female entrepreneurs since 2005. The network has nearly 300 members who have invested more than $80 million in 77 women-led companies.
By empowering women with investment, mentoring and a network of women and men (20 percent of its members are men) who have succeeded at the highest levels of corporations, law, medicine and academia. In 2005, for example, when Golden Seeds launched, 40 percent of U.S. entrepreneurs were women yet fewer than three percent of the companies that received angel funding were led by women. Back then just five percent of angel investors were women. That was the impetus for starting Golden Seeds, to get more women involved in funding companies and enable more women-led ventures to raise capital.
The investment group’s members—generally entrepreneurs with the resources to invest, ex-financial services professionals and Fortune 500 execs–invest a minimum of $25,000 each year. And as more women take the path of entrepreneurship, the number of women applying to Golden Seeds has increased. In a typical month the group receives over 30 applications from companies; about three percent of companies that apply are funded.
Golden Seeds members have helped change the landscape for women entrepreneurs and executives. Today almost half of privately held businesses in the U.S. are at least half-owned by women. In 2014, 28 percent of angel-funded companies were led by women and 26 percent of angel investors were women. Women have also expanded their presence on corporate boards and in the C-suite, although there is still a long way to go to reach something close to parity.
In fact, Carolyn Maloney, a congressional representative from New York, introduced a bill in February that would require companies to disclose the number of women on their boards and what steps they’ve taken to recruit more women into senior management. Research from Robin Ely, a professor at Harvard Business School who studies gender issues in organizations, shows that groups with racial and gender diversity tend to make better decisions.
Golden Seeds’ investment philosophy is based on both their mission of helping women entrepreneurs and leaders but also research that shows gender-diverse teams produce a better return on equity. A study by the consulting firm McKinsey & Company that looked at the performance of companies and the composition of their executive boards, found that those with the most gender and culturally diverse boards had a return on equity that was 53 percent higher, on average, than companies with the least diverse boards. Earnings at companies with the most diverse leadership were 14 percent higher, on average, than companies with the least diversity. And in a 2014 study, Credit Suisse Research Institute found that more women in senior management positions improves companies’ financial performance.
By investing and supporting women-led businesses, as well as companies where women hold leadership positions and own substantial equity, Golden Seeds isn’t just supporting women, it is supporting businesses destined for success.