Op-Ed: When Funding Follows Research, Women Win

By  - 
Photo by Didier Weemaels

By Julie Castro Abrams

Small businesses are responsible for two in three net new jobs. Diving in deeper, women are the leading force in many of these new jobs. Owning more than 12 million businesses and employing 10 million workers, women are the backbone of our economy. These businesses also return more for their investors. Data suggests that women-led companies return 47 cents more on the dollar compared to those led by their male counterparts. Yet women-led startups struggle to receive funding. In 2023, just 2% of funding went to women-only teams.

This is where campaigns like The New Table and venture capital (VC) firms like How Women Invest come in. By educating women, demystifying investing, and inviting women to participate as investors in venture funds, we can change the return on investment (ROI) landscape and innovation economy leadership.

The critical factor isn’t how much women are investing but where they are investing. Women are investing in women-run VC firms that are 20 times more likely to invest in women-founded companies. With an expansion of the number of women-led VC firms, we have seen more money moving to women-led startups.This is only the beginning. To continue seeing higher ROI and innovative solutions, we need women-led VCs to succeed. However, women-led funds, like the women-led companies they support, are also critically underfunded. Why are they not receiving equitable support, and how do we fix it?

Limited Access to Funding
Some key problems arise when it comes to supporting women VC fund managers. First, venture firms are heavily regulated when it comes to how they can acquire new investors. In practice, this means women fund managers rely on personal networks to increase investments. However, when compared to the generational wealth and networks men have access to, women fund managers have less access to investment capital, which results in smaller firms.

Smaller firm sizes also mean that the fund is less sustainable. VC firms operate on management fees: a percentage of the total fund size. Smaller investments mean less money for additional staff and lower staff salaries. Smaller firms also lose out on investments from large family offices and private equity firms that do not consider funds under a certain size. This locks women out of sustainable funds.

Finally, women-led firms have to “prove” themselves more than firms run by men. Investments they make are more scrutinized. Funding priorities that center around women and diverse founders are also sometimes seen as so-called reverse discrimination. All of this means that women spend more time justifying their decisions and have less time for fundraising.

The Path Forward
As we challenge this status quo, there are three key pillars that are important: research, advising, and mobilizing. If we can move the needle in these three areas, women-run VC firms and women-led startups will start to see more of the funding they need to succeed. So, how can higher education make an impact?

Women-led businesses have received a lot of attention and have been the subject of some meaningful research. However, there is significantly less research on women-led VC firms. We need additional data to inform our own decisions in running these firms, to inform investors, and to inform legislation. This creates an opportunity for college and university programs to lead the charge by developing and prioritizing research projects that would result in these kinds of crucial datasets.

Higher education institutions also have a massive opportunity to safeguard their own financial futures, and ensure alignment with stakeholder interests, by investing in women-led firms. Divestment campaigns have rocked universities around the country and institutions are being increasingly, and publicly, held responsible for the investments their endowments are involved in. It’s time for colleges and universities to align their investments with their institutional values. Advise your institution’s leadership to look into where their endowment funds are going and who they’re supporting.

Colleges and universities are home to some of the best tech incubators in the country. It’s time to bring women VCs and investors into this space and establish ecosystems where VC firms can be introduced to investors and their next portfolio company. Develop training and support groups for VCs to find mentors. Utilize your institution’s space, conferences, and research to specifically highlight women-led efforts.

Institutions of higher education have the opportunity to be the nexus point for change by bringing VCs, limited partners, entrepreneurs, and researchers together to help drive our economy forward. There is massive financial and social benefit to doing so.

>> Julie Castro Abrams is the founder and managing partner at How Women Invest and the CEO of How Women Lead.