Bumble IPO a win for ladies founders, enterprise capital funds nonetheless low
Whitney Wolfe Herd speaks on stage during the Fortune Most Powerful Women Next Gen conference at Monarch Beach Resort on November 13, 2017 in Dana Point, California.
Joe Scarnici | Getty Images Entertainment
When 31-year-old Bumble CEO Whitney Wolfe Herd goes public this week, she will be known not only for her youth, but also as one of the few founders to have her company go public.
It’s a fitting achievement for the founder of a dating app that aims to put women in the driver’s seat. But it also hammers home the still unsuitable playing field for entrepreneurs.
Bumble, whose board of directors is 73% women, is slated to begin trading on the Nasdaq a few days before Valentine’s Day on Thursday. The company will sell its shares at $ 43 per share and raise $ 2.2 billion from investors. The company is initially valued at around 8 billion US dollars.
The market reaction will serve as the litmus test of investing in women-owned businesses.
Today, women make up 7.4% of Fortune 500 CEOs – an all-time high, but still an astonishingly low number. Even fewer women founders of public limited companies. Nasdaq estimates that only 20 of the US public companies active today were led by their founder through the IPO.
Women’s funding falls as global deals rise
The problem is not a lack of women entrepreneurs, but a lack of support where it matters: funding.
In a 2018 study, the Boston Consulting Group found “a significant gender gap in new business financing.” According to the study, investments in businesses founded or co-founded by women averaged $ 935,000, less than half the average $ 2.1 million men receive.
Even so, startups founded by women and co-founded made 78 cents for every dollar invested, while startups founded by men made only 31 cents.
Covid-19 could be the greatest threat to female founders.
Managing Director and Senior Partner of the Boston Consulting Group
The pandemic has only widened this gap.
In 2020, global risk finance increased 13% year over year, while investments in women decreased 27%. In the meantime, the proportion of women founders who were only assigned to female founders has fallen from 2.8% to 2.3%, according to Crunchbase data. This is due to the fact that women, often primary caregivers, are said to be more affected by the pandemic overall.
“The convergence of crises – demands for racial justice, #MeToo, Black Lives Matter, Covid-19 and an economic downturn – makes this a crucial moment for business integration, justice and diversity,” said Matt Krentz, Managing Director and Senior Partner at BCG and The study co-authored, said CNBC. “Of all these problems, Covid-19 could be the greatest threat to female founders.”
Redirect investments where they are needed
The economic benefits of investing in women are well documented. By some estimates, equal business participation by men and women could add $ 5 trillion to the global economy.
And companies and institutions seem to be listening now. Many have made bold commitments to better support gender equality and female founders.
What female founders need is simple and equal access to financial investments.
managing partner, Her Capital
“Awareness of the funding gap and the impact of different leadership teams is better understood, and investors have begun to ask directly about the diversity of founders and leadership teams,” said Krentz.
Too often, however, these investments are poorly channeled, according to Tanya Rolfe, managing partner at Her Capital, a women-run venture capital company that focuses on female founders in Southeast Asia.
“Women seem to be at the center of a lot of additional mentoring, which only suggests that women are missing something,” said Rolfe. “What female founders need is simple and equal access to financial investments.”
To achieve this, more diversity is needed at the fund manager level, Rolfe said.
According to All Raise, a nonprofit focused on accelerating the success of female founders and funders, women made up just 13% of all venture capitalists in 2020. An estimated 11% of fund managers were women, All Raise said.
“If we want to see diversity at the founder level, we need to invest in diversity at the capital allocator level – fund managers like me,” continued Rolfe. “It is almost more important to invest in venture capital funds with specific strategies for investing in different founders. This is where we will see the major changes.”
Revision of traditional investment figures
Nevertheless, various funds continue to face an uphill battle.
Since many are still in their infancy and have little success, they are usually outside the investment criteria of the institutes. As a result, managers often seek less lucrative and more time-consuming deals from private investors.
Pippa Lamb, a partner in early-stage mutual fund Sweet Capital, says such an approach needs to be revised.
The pricing of perceived risk based on a person’s race or gender is very out of date to me.
Partner, Sweet Capital
“The pricing of perceived risk based on a person’s race or gender is very out of date to me,” said Lamb. “I would guess top-tier institutional investors are ready to do the job for full diligence managers no matter what they look like.”
“We need more diverse representation in all areas 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 most critical, especially at the limited partner (LP) level: the investor’s investors.”
BCG’s Krentz hopes the tide will turn.
“Investors should understand that current market forces offer promising opportunities for women-owned companies,” he said. “The lack of funding means that there is less competition for women-supported companies and, on average, these companies perform better than companies with all male founders.”
But until this understanding grows, Rolfe and Lamb’s advice to female founders is simple: keep going.
“Women can do the same thing that male founders do to attract investors,” said Rolfe. “If you’re a great founder with a solid business plan and traction to prove your execution and thesis, that should be enough.”