If you’re interested in investing in early-stage companies, it is wise to focus some of your investments on companies led by women. This is what I’ve learned not only as an entrepreneur working alongside my wife, who founded a successful business but also in the six years since I joined Golden Seeds, a network of angel investors that exclusively funds women-led companies.There are more than 11 million women-owned businesses in the U.S. today, which represents an increase of 26 percent from a decade ago, according to a 2017 report by American Express. In 2005, women represented less than 3 percent of the companies that received startup funding. In 2016, women-led companies represented 22 percent of early-stage companies that received funding, according to data from the Center for Venture Research at the University of New Hampshire. These women-owned and women-led early-stage businesses need backers. It’s more difficult for women to secure funding for their startups, which offers investors an opportunity to invest in promising companies while doing their part in advancing gender parity.
The reason I invest in this high-potential segment is backed by widely available research revealing that companies with gender-diverse boards of directors and management teams produce a superior return on equity. It just seems right to support the idea of gender diversity, but there is also data to prove the point. Women-led and women-owned companies yield above-market returns on investments, according to an analysis by MSCI ESG Research. And personally, I’ve had the opportunity to see numerous pitches from women-led companies, and I consistently see entrepreneurs who fit the profile angel investors want to see.
These are some of my observations:
Women create businesses that solve problems.
My wife, Susan, created a successful company, Intimacy, based on solving a problem. Women were wearing ill-fitting bras, and throwing away money on the wrong garments. In building the business, Susan made a name for herself as “the bra whisperer” on shows like Oprah, Dr. Oz and The Today Show in part because the problem she identified and solved was so widespread. When we sold the company in 2012, we had 18 stores and sales of nearly $40 million.
I see this in many of the women founders and executives who approach us while raising funds for their companies. They are less likely to create a product simply because it’s feasible or technology suddenly allows them to do so. Instead, they focus on addressing real issues or problems they’ve observed or experienced.
This is true in every industry. The founders I’ve met are addressing issues in fields including healthcare, clean technology, artificial intelligence (AI), enterprise technology, consumer products and services, cybersecurity and others – issues that affect millions of people worldwide. And women entrepreneurs don’t just stop at solving the problem. They make sure there’s a streamlined, cost-effective solution that’s both time- and resource-efficient.
Women founders move forward with less capital, but ample experience.
The resource efficiency of women entrepreneurs is often by necessity. While women have made great strides in entrepreneurship in the past decade, they still lag behind their male counterparts when it comes to raising capital. Women know they’re likely to start with less funding, but determined to scale their companies, they generally learn early to be capital efficient.
It helps that when women start or lead companies, they tend to bring with them five to 10 years of experience in their respective fields — at least according to the many women-led companies with which I’ve met. While there’s the occasional phenom, a recent college grad or student, one recurring theme with women entrepreneurs is experience, and that experience contributes to success.
Women are also becoming serial entrepreneurs, with the measurable track records and results in angel investors want to see. Golden Seeds reports this was rarely true when the organization was founded in 2005. But this is changing. For instance, in 2017, serial entrepreneurs were one-third of the women-led companies in which the network invested, marking a significant shift.
Women entrepreneurs are creating collaborative, diverse company cultures in every city.
Much like great ideas, great women entrepreneurs are everywhere. This is one of the main reasons why Golden Seeds’ network of angel investors is nationwide. Of course, there are talented women entrepreneurs in Silicon Valley, New York, Boston and Atlanta, but let’s not forget about those female-run startups in many other locations.
Regardless of their location, the women founders I’ve met are creating diverse workforces and company cultures. I saw this firsthand in the company my wife founded, and it has been repeated innumerable times in the years since, as I have witnessed dozens of pitches by women entrepreneurs. Women-led company cultures tend to be collaborative, inclusive and consultative.
Investing in smart, driven entrepreneurs and the companies they’re leading is a sound decision — one more female and male investors should consider.
David Nethero Is the managing director of Golden Seeds, David Nethero is a founding member of the Atlanta chapter. He is president of Nethero Management Company, which is involved in high-potential startups. He spent 25 years in business and marketing leadership roles at Dow Chemical, Union Carbide and British Petroleum.