Now that anyone can invest in a start-up, you might be wondering what you should look for before you pitch in. A great idea? Sure. Smart people? Absolutely.
Oh, and women.
This isn’t just for warm fuzzies. A new study by Dow Jones shows–definitively–that start-ups are more likely to succeed if they have women on the executive team.
The study, which examined more than 15 years of data on venture-backed start-up companiesBrand new, high-risk and high-growth companies that are given funds to operate by investors, with the hopes that they will give a return on the initial investment either through an IPO or by being acquired., found that this held true no matter which way you slice the data:
- Successful private companies have a median of 7.1% female executives, while unsuccessful companies have only 3.1%.
- As the number of females in the VP and directors’ suite (or couch rather, it is a start-up) increases, so does the chances of success for the company.
- Of start-ups with five or more females, 61% succeeded. But less than 50% of companies overall in the study succeeded.
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(Full disclosure: LearnVest is a venture-backed start-up company with women on the executive team, thank you very much.)
So what makes a start-up “successful?” The researchers defined it as one that has had an IPO or has filed for one, is still privately owned but consistently profitable, or has been acquired for more than the initial investment.
This relationship between having women in the c-suite and cash-money actually depends on the industry. While having female executives doesn’t matter for companies in the consumer goods or energy and utilities industries, the study says it does make a difference when it comes to business and financial services, consumer services, health care and information technology.
Why We Aren’t Surprised
Hmmm, why does this research sound so familiar? Oh yes–this study backs up 2011 research that focused on just tech start-ups, which found that tech venture-backed companies led by women “generate higher revenues per dollar of invested capital and have lower failure rates than those led by men.”
This is despite–or maybe even because–women-led start-ups tend to start with lower capital as they run up against biases in the male-dominated venture capital world. So they get scrappy and make it work. (Sound like anyone you know?)
Other research has found that companies with more diversity deliver better growth after IPOs. And finally, on a more fundamental level, groups that include women are better able to solve problems, regardless of IQ scores of the individuals involved.
Innovative Start-ups Are Behind the Times
It looks like the start-up world has its work cut out for it. Only 1.3% of privately held companies have a female founder, while 6.5% have a female CEO and 20% have one or more female c-level executives. And these percentages are lower at smaller companies. The research found that while there are few female executives at young companies, they are pulled in as these venture-backed start-ups grow and acquire talent.
Where you will most likely find females is at health care and financial service start-ups, and leading the sales and marketing teams across industries.
So next time you read a breathless account of a new start-up, make sure to ask in the comments, “So, does it have any female executives?”
And remember that this takeaway applies to the make-up of any company, so be sure to lobby for that spot on the committee, and make your opinion heard.