The wage gap is far from a new concept. It has been proven that women make less money than their male counterparts for the same jobs, and the gap can be widened depending on the race of the woman. What is less talked about, though, is the investment gap.
A recent study by Boston Consulting Group in collaboration with MassChallenge found that companies founded or co-founded by women generate more revenue than those founded by their male counterparts, but secure investments at around $935,000, while companies founded by men average more than double that at $2.1 million.
According to the study, businesses with a woman founder generated ten percent more revenue on average than those with all-male founders. Startups founded by women generated $730,000 in revenue, while those founded by men only generated $662,000.
This amounts to start-ups founded by women earning 78 cents for every dollar invested in them, and start-ups founded by men earning 31 cents for every dollar in them, making companies founded by women a better investment.
Multicultural women are the fastest-growing group of entrepreneurs in the country. They are highly qualified, have a proven drive for success, and are the among the most educated demographic in the United States. Despite these factors, female-led ventures are grossly underfunded, with Black female founders suffering most. On average, Black women only receive 25 percent of what they asked for while their male counterparts receive over 50 percent of the funds they request, on average. Further, Black women entrepreneurs get 0.2 percent of total venture capital funding and experience significantly greater difficulties securing credit and lending. Of those Black women who secure investment, they raise on average $36,000 – just one-third of the capital raised by white male founders (on average, $1.3 million).
According to the women business owners surveyed, part of the issue is that investors automatically assume they don’t fully understand business.
They report receiving questions that are meant to gauge their understanding of basic industry knowledge. Another cause for the disparity, according to surveyed investors is that woman are less likely to defend themselves from criticism, and tend to just accept it as constructive feedback while men argue their point.
Additionally, women tend to make more conservative estimates with their business projections which are starkly different from the bold projections usually given by men.
The final cause for the investment gap found by the study is the lack of familiarity male investors tend to have with the products and/or services provided by business founded by women.
While these factors have made it difficult for start-ups founded by women to find investors, they have not prevented success, as evident by Boston Consulting Group’s findings. Moving forward, understanding these obstacles may play an important role in closing the investment gap.