Beyond Gender, Why Women Outperform Men on Startup Revenue As Reported by BCG

From a BCG Report: “The gender pay gap is well documented: women make about 80 cents for every dollar that a man earns. Less well known: the gender investment gap. According to our research, when women business owners pitch their ideas to investors for early-stage capital, they receive significantly less—a disparity that averages more than $1 million—than men. Yet businesses founded by women ultimately deliver higher revenue—more than twice as much per dollar invested—than those founded by men, making women-owned companies better investments for financial backers. “

Though I have not read the full BCG study, what we see here is that women looking for funds are fewer and on average are more prepared than men. Yes, the women have deeper experience and are more prepared to lead companies. You rarely see a woman coming out of college and asking for funds to run a startup. But men do that all the time. In short, many men do drop out to become founders. Statistically, women run the shows better.

But it is not about gender.  Simply, it is analogous to what happens when you compare Africa’s top 10% of graduating class who migrate to America with the broad brothers and sisters who came before us. Women are those new  immigrants while the men are the broad spectrum of those who came before. Statistically, the migrant Africans do outperform because they’re already filtered across American embassies.

In other words, what BCG found is supported but it is not necessarily about gender. Rather, those women who do get funds are always better and prepared to lead. They have accomplished so much before coming to raise funds while men can ask for money without even knowing why. When you run the average, women hold the ace, statistically, because the very best end up being funded.

One might think that gender plays no role in the realm of investing in early-stage companies. Investors make calculated decisions that are—or should be—based on business plans and projections. Moreover, a growing body of evidence shows that organizations with a higher percentage of women in leadership roles outperform male-dominated companies. (See “ How Diverse Leadership Teams Boost Innovation ,” BCG article, January 2018.) Unfortunately, however, women-owned companies don’t get the same level of financial backing as those founded by men.

To determine the scope of the funding gap, BCG turned to the detailed data MassChallenge has collected on the startup organizations it has worked with. About 42% of all MassChallenge-accelerated businesses—of all types and in all locations—have had at least one female founder. Aiming to build on the growing proportion of women entrepreneurs, the availability of education and support for them, and the sizable community of women who are business experts, MassChallenge determined that it needed to learn more about how its women entrepreneurs were faring and how the program could better prepare them for future success.

In a review of five years of investment and revenue data, the gender-focused analysis showed a clear funding gap (see the exhibit).

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