Bumble IPO a gain for women founders, venture capital funds still low

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

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

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

The market response will act as a test case for investing in women-founded companies.

Today, women make up only 7.4% of Fortune 500 CEOs – a historic level, but still an astonishingly low figure. There are even fewer women founders of public companies. Nasdaq estimates that only 20 of today’s active U.S. public companies have been IPO-run by their founder.

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

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

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

The pandemic has only widened this gap.

In 2020, global risk financing increased by 13% compared to the previous year, but investments in women decreased by 27%. Meanwhile, the share of dollars allocated to women-only founders fell from 2.8% to 2.3%, according to Crunchbase. This is because women, often primary caregivers, are said to be more affected by the pandemic in general.

“The confluence of crises – demands for racial justice, #MeToo, Black Lives Matter, Covid-19 and an economic recession – makes this a critical moment for corporate inclusion, equity and diversity,” said Matt Krentz, CEO and senior partner at BCG , and co-author of the study, told CNBC. “Of all these issues, Covid-19 could be the biggest threat to women founders.”

The economic benefits of investing in women are well documented. According to some estimates, equal participation of entrepreneurs between men and women could add 5 trillion dollars to the global economy.

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

“Awareness of the funding gap, the impact of various management teams is better understood and investors have begun to ask directly about the diversity of founders and management teams,” said Krentz.

But too often these investments are poorly channeled, according to Tanya Rolfe, an administrative partner at Her Capital, a women’s-run venture capital firm focused on women founders in Southeast Asia.

“Women seem to be at the center of many additional mentorships, which only suggests that something is missing in women,” Rolfe said. “What the founding women need is simple and equal access to financial investment.”

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

In 2020, women accounted for only 13% of all venture capital decision-makers, according to All Raise, a non-profit organization that focuses on accelerating the success of women founders and funders. It is estimated that 11 percent of fund managers were women, All Raise said.

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

However, various funds continue to face an upward battle.

With many still in their infancy and a short history, they typically fall outside the institutions’ investment criteria, leading managers to often seek less profitable and time-consuming offers from private investors.

Pippa Lamb, a partner at the Sweet Capital investment fund, says this type of approach needs a renovation.

“The price of perceived risk based on someone’s race or gender feels very outdated for me,” Lamb said. “I would suspect that the best institutional investors in the class are willing to do the job of comprehensive due diligence managers, regardless of their appearance.”

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

Krentz from BCG is hoping that the wave can change.

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

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

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