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March 8th is International Women’s Day, and there’s a lot to celebrate from where we’re standing.
Women have a greater presence than ever before in private equity. They’re founding businesses, sitting on executive teams, navigating exits and inspiring other women to do the same. As more women take senior positions, the empirical evidence to support gender diversity in the workplace is astounding. Female founding teams are twice as likely to exit than their male-founded counterparts, delivering growth to their industries, innovations to their customers and returns to their investors.
We’ve made huge progress, but we have a long way to go. This is a candid assessment of the state of gender diversity in private equity.
➤ Diversity pays off
The private equity space has made huge strides in the way of gender diversity in the last decade. By the close of 2019, 20% of newly founded startups globally were female-founded, doubling 2009’s value. Crunchbase reports that in the five years since 2014, nearly 10,000 startups with at least one female founder successfully raised funding – and many of those companies went on to break records. In 2019, 21 female-founded companies became unicorns, including beauty brand Glossier – which closed a $100M Series D funding round, led by Sequoia Capital (that’s double the size of its Series C round). Those 21 unicorns comprised 14.8% of all new unicorns in 2019.
To put fuel to the fire, Pitchbook analysis shows that female entrepreneurs and CEOs are exiting faster and at higher values than ever. A record 198 female-founded startups exited via IPO or acquisition in 2019, up over 520% from 2009. In fact, the number of female-founded exits that year increased 16% while male-founded exits fell. A prime example is dating app Bumble, founded by Whitney Wolf-Herd, which made a splash on its first day of trading on the Nasdaq, reaching a market cap of $7.7B – up 63.5% on its initial public offering.
At Seedrs, we’ve helped over 200 female-founded businesses reach their investment targets in the last eight years, including STEM edtech Tech Will Save Us (£748K), sanitation solution Loowatt (£1.2M) and solar energy innovator Solivus (£1.6M). These three alone brought on board over 2,700 investors combined, signalling the importance of founding team diversity for all investors, both retail and institutional.
➤ Investors are taking notice
The impressive success of many female-founded businesses is capturing the attention of VCs globally. Venture investors closed approximately 2,000 deals with female-founded companies in 2019, amounting to $14.1B. Just one decade ago, that number was less than $2B. The trend has continued upwards this year, with fashion brand Rent the Runway, founded by Jennifer Hyman, closing a $125M round led by Franklin Templeton Investments and Bain Capital Ventures, catapulting the business to unicorn status.
VCs are also increasingly focusing their efforts on businesses in the femtech space – the majority of which, unsurprisingly, are women-led. Icon Ventures just backed women’s and family digital health platform Maven’s $45M Series C round, to power the future of femcare. Last year, we launched our first femtech raise, female-founded sustainable period care brand &SISTERS, which raised over £660K on Seedrs. The markets for menstruation, fertility, family and menopausal care (and much, much more) are already proven, and investors are on the lookout for new opportunities in this space.
➤ There’s still a long way to go
While the future of gender diversity in private equity looks much brighter than it did ten years ago, it still falls short in reflecting the diversity of the world around us. Women in private company boardrooms remain outnumbered by men, nine to one. For every pound of VC money invested into private companies, female founding teams receive less than 1 pence. To put this into perspective, SoftBank invested $5 billion into WeWork in 2019, which is $1.5 billion more than all VC investment into female-founded companies that year combined. While women-led businesses have been disproportionately impacted by the Covid-19 crisis, The Telegraph reported that only 1% of Britain’s startup bailout money went to female founders.
Adding women into the mix is a proven and powerful tool for business success. According to HEC research, gender diversity reduces risk of failure, produces higher returns, and drives efficiency in private equity buyouts. In fact, buyout teams with at least one woman outperformed all-male teams by an average of 52 cents on the dollar. However, despite powerful data in their favour, female founders are less likely to receive follow-on funding than their male equivalents – women-led startups received just 2.3% of VC funding in 2020. So, while there is light at the end of the tunnel, we all have a lot of work ahead of us.
➤ What can we do?
Investing in inclusion is crucial for all stakeholders in the private equity space. VCs and private businesses alike should take necessary steps to layer inclusion into their company culture – through diversity hiring and training initiatives – and those changes will have ripple effects in the wider ecosystem. We’ve been working with Hustle Crew over the last year to foster inclusion and creativity in our own team, to ensure diversity is at the core of what we do.
This is a collaborative effort. We signed the Women in Finance Charter and are committed to working alongside other signatory firms to build a more balanced and fairer financial services industry for all. We’re also working with a number of organisations that support female founders including Found & Flourish and Enter the Arena. These connections go a long way in ensuring entrepreneurs get the visibility and access to funding they need to level the playing field, and build businesses that will champion diversity.
Diversity should be front of mind for investors too. Statistically, venture investment in a diverse team yields better returns. Investors must hold businesses accountable to their diversity promises, and strive to back businesses that keep diversity front of mind – not only to create growth, but to fuel a powerful transition that will benefit all.
The private equity space is in a strong position to build a supportive, equal and prosperous future for early stage businesses and investors. We’re proud of the progress we’ve made, and we’re hard at work to ensure it continues.
Happy International Women’s day to the incredible female entrepreneurs, executives and investors who are shattering glass ceilings and inspiring us all to do better.
