Bumble’s IPO may be a feat — but venture capital funding for women still a poor match

When 31-year-old Bumble CEO Whitney Wolfe Herd takes her company public this week, she will be noted not only for her youth but also as one of the few female founders to lead her company to IPO.

It’s a fitting feat for the founder of a dating app designed to put women in the driver’s seat. But it also hammers home the still mismatched playing field for men and women entrepreneurs.

Bumble, whose board comprises 73% women, is expected to begin trading Thursday on the Nasdaq, just days before Valentine’s Day. The company will sell its stock at $43 per share, raising $2.2 billion from investors. The offering initially values the company around $8 billion.

The market response will act as a litmus test for investments in companies founded by women.

Today, women account for just 7.4% of Fortune 500 CEOs — an all-time high but still a staggeringly low figure. Female founders of public companies number even fewer. Nasdaq estimates that just 20 of today’s active U.S. public companies were led through IPO by their female founder.

The problem is not a lack of women entrepreneurs, but rather a lack of support where it matters: Funding.

In a 2018 study, Boston Consulting Group found a “clear gender gap in new business funding.” According to the research, investments in businesses founded or co-founded by women averaged $935,000, less than half the average $2.1 million received by men.

Despite that, for every dollar of funding invested, start-ups founded and co-founded by women generated 78 cents while male-founded start-ups generated just 31 cents.

The pandemic has only widened that gap.

In 2020, global venture funding rose 13% from the previous year, yet investments in women fell 27%. Meantime, the share of dollars apportioned to female-only founders dropped from 2.8% to 2.3%, according to Crunchbase data. That comes as women, often primary caregivers, are said to be more adversely impacted by the pandemic overall.

“Confluence of crises — demands for racial justice, #MeToo, Black Lives Matter, Covid-19, and an economic downturn — makes this a critical moment for corporate inclusion, equity and diversity,” Matt Krentz, managing director and senior partner at BCG, and co-author of the study, told CNBC. “Of all these issues, Covid-19 may pose the largest threat to female founders.”

The economic benefits of investing in women are well documented. By some estimates, equal entrepreneurial participation by men and women could add $5 trillion to the global economy.

And corporations and institutions now appear to be listening. Many have made bold commitments to better support gender equality and female founders.

“Awareness of the funding gap, the impact of diverse leadership teams is better understood and investors have started asking directly about the diversity in founders and leadership teams,” said Krentz.

But too often those investments are poorly channeled, according to Tanya Rolfe, managing partner at Her Capital, a female-led venture capital firm focused on female founders in Southeast Asia.

“Women seem to be the focus of lots of additional mentoring, which only suggests that there is something lacking in women,” said Rolfe. “What women founders need is simple, and it is equal access to financial investment.”

To achieve that, greater diversity is needed at the fund manager level, said Rolfe.

In 2020, women accounted for just 13% of all venture capital decision-makers, according to All Raise, a nonprofit that focuses on accelerating the success of female founders and funders. An estimated 11% of fund managers were women, All Raise said.

“If we want to see diversity at the founder level, we must invest in diversity at capital allocator level — the fund manager, like me,” Rolfe continued. “It is almost more important to invest in venture capital funds with specific strategies of investing into diverse founders. This is where we will see the material change.”

Yet diverse funds continue to face an uphill battle.

With many still in their infancy and with little track record, they typically fall outside of institutions’ investment criteria, leading managers to seek often less lucrative and more time-consuming deals from private investors.

Pippa Lamb, a partner at early-stage investment fund Sweet Capital, says that kind of approach needs a revamp.

“Pricing perceived risk based on someone’s race or gender feels very outdated to me,” said Lamb. “I would suspect that best-in-class institutional investors are willing to do the work to comprehensively diligence managers regardless of what they look like.”

“We need more diverse representation in every area of the start-up ecosystem,” she said, citing female founders, female board members, female venture capitalists and female institutional investors. “When it comes to capital raising, the latter two are most critical, and especially at the limited partner (LP) level: the investor’s investors.”

Krentz from BCG is hopeful that the tide may be turning.

“Investors should understand that current market forces make women-owned companies very promising opportunities,” he said. “The lack of funding means that there is less competition for women-backed companies, and those companies, on average, perform better than those with all-male founders.”

But until that understanding grows, Rolfe and Lamb’s advice to female founders is simple: Keep on keeping on.

“Women can do the same things that male founders do to attract investors,” said Rolfe. “If you are an outstanding founder with a solid business plan and traction to prove your execution and thesis, then this should be enough.”