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Women receive a small fraction of venture capital funding, and closing the investment gender gap could drive economic growth, according to a new report from Citigroup.
Women-founded companies received only 2.1% of venture capital dollars invested in 2021 in the United States, according to PitchBook.
“Lack of access to finance is one of the biggest challenges facing female entrepreneurs around the world,” said Andrew Pitt, global research director at Citi, in the report.
Achieving gender equality in business growth can increase global gross domestic product by as much as $ 2 trillion, or 2% to 3% of global GDP, according to Citi’s analysis. Gender equality could also generate between 288 million and 433 million jobs, Citi found.
Venture capital gender differences
Venture capital is an important form of entrepreneurship financing, with VC-backed companies accounting for 43% of U.S. public companies founded since 1979, according to a 2015 Stanford Business report.
However, women are less likely to receive VC funding because lenders often overestimate the risk of investing in female entrepreneurs, according to Citi.
The perception of risk comes even though data suggest that female-led firms have a better return on investment than male-led counterparties. For every $ 1 of investment raised, women-owned start-ups generated 78 cents in revenue versus 31 cents generated by male-owned companies, according to a BCG report.
The gender differences in VC investments also stem from an under-representation of female VC investors, Citi said. Only 4.9% of U.S. venture capital partners are women, according to a 2020 report from Women in VC.
“Much of this is driven by the fact that investors are predominantly men, while many of the women in the industry are often not in roles that allow them to make a financing offer,” the Citi report states. .
In fact, female VC partners as male investors are three times more likely to fund companies with a female CEO, PitchBook found.
Colored women receive an even smaller tab of venture capital. Only 0.6% of U.S. VC investment has gone to black women since 2009, according to an analysis by ProjectDiane.
Recommendations for financial institutions
Citi made several recommendations to venture capital firms and other financial institutions to improve the opportunities for women entrepreneurs.
Companies should collect gender-disaggregated data on investment portfolios, update investment instruments with a gender lens, and ensure that start-up incubators are inclusive, among other Citi recommendations.
Citi researchers also said that firms should collaborate with associations and networks of female entrepreneurs, set goals for the inclusion of female founders, and support female employees in the financial services industry.
“Let’s all strive to respond to the results of this report,” Pitt said.
– CNBCs Michael Bloom contributed to this report.