Bumble IPO a win for female founders, venture capital funds still low

When Bumble’s 31-year-old CEO Whitney Wolfe Herd makes her company public this week, she will be known not only for her youth, but also as one of the few female founders who led her company to IPO.

It’s a fitting feat for the founder of a dating app designed to put women in the driving seat. But it also emphasizes the still incompatible playing field for male and female entrepreneurs.

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

The market response will serve as a litmus test for investment in women-founded companies.

Today, women represent just 7.4% of Fortune 500 CEOs – a record high but still staggeringly low. There are even fewer female founders of public companies. Nasdaq estimates that only 20 of the current active US publicly traded companies through IPO were led by their female founder.

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

In a 2018 study, Boston Consulting Group found a “clear gender gap in the financing of new businesses.” Investments in companies founded or co-founded by women averaged $ 935,000, less than half of the average $ 2.1 million men receive, according to the study.

Despite this, start-ups founded and co-founded by women generated 78 cents for every dollar of money invested, while male start-ups earned only 31 cents.

The pandemic has only widened that gap.

In 2020, global venture capital funding rose 13% from the previous year, but investment in women fell 27%. Meanwhile, the share of dollars allocated to female-only founders fell from 2.8% to 2.3%, according to data from Crunchbase. That’s because women, often primary care providers, are reported to be more affected by the pandemic in general.

“Confluence of crises – demands for racial justice, #MeToo, Black Lives Matter, Covid-19 and an economic downturn – makes this a critical time for corporate inclusion, equality and diversity,” Matt Krentz, CEO and senior partner at BCG , and co-author of the study, told CNBC. “Of all these problems, Covid-19 may pose the greatest threat to female founders.”

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

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

“Realizing the funding gap, the impact of diverse leadership teams is being better understood and investors are immediately starting to ask about the diversity in founders and leadership teams,” said Krentz.

All too often, those investments are poorly channeled, said Tanya Rolfe, managing partner at Her Capital, a female-led venture capital firm targeting female founders in Southeast Asia.

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

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

According to All Raise, a non-profit organization dedicated to accelerating the success of female founders and funders, by 2020, only 13% of all venture capital decision-makers were. According to All Raise, an estimated 11% of fund managers were women.

“If we want to see diversity at the founder level, we have to invest in diversity at the level of the capital distributor – the fund manager, like me,” Rolfe continued. “It’s almost more important to invest in venture capital funds with specific strategies to invest in a variety of founders. This is where we will see the material change.”

Nevertheless, various funds continue to face a tough battle.

Because many are in their infancy and have little track record, they typically fall outside the investment criteria of institutions, often leaving managers seeking less lucrative and more time-consuming deals from private investors.

Pippa Lamb, a partner at early-stage investment fund Sweet Capital, says such an approach needs a revamp.

“The pricing of perceived risk based on a person’s race or gender feels very outdated to me,” said Lamb. “I suspect the very best institutional investors are willing to put in the work of fully committed managers no matter what they look like.”

“We need a 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 raising capital, the latter two are the most critical, and especially at the level of the limited partner (LP): the investors of the investor.”

Krentz from BCG hopes that the tide will turn.

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

But until that understanding grows, Rolfe and Lamb’s advice to female founders is simple: keep going.

“Women can do the same things as male founders to attract investors,” says Rolfe. “If you are an excellent founder with a solid business plan and grip to prove your execution and thesis, this should be enough.”