Focusing on profitability in 2020, why investors should look closely at women-led startups
While coronavirus may have skid many a plan and changed the view towards markets, one of the interesting themes this year in the startup ecosystem remains - profitability and positive unit economics. And if investors are focused on profitability then they need to back more women entrepreneurs.
A report published by the Boston Consulting Group (BCG) stated that businesses founded by women deliver higher revenue, in fact, twice as much, per dollar invested than those founded by men.
Moreover, another report by the BCG suggests that if both men and women around the world participate equally as entrepreneurs, global GDP can rise to six percent from the current three percent.
That, simply, is enough evidence that women entrepreneurs should not only be backed but also encouraged to take the limelight. While such a shift in approach has already taken place across the world, India too is slowly and steadily shifting.
Women entrepreneurs bring more revenue
Echoing this, Ranjita Ravi, Co-founder and Director,Energies, an electric vehicle (EV) startup, says,
“In the last two years, we have grown >3x in our revenues. We're one of the few homegrown/made in India EV startups generating consistently growing revenues from our core business. This, and our capital efficiency, are two things that are core focus to our growth.”
A Harvard Business Review report adds that women performed better over time, generating 10 percent higher cumulative revenue over a five-year period: $730,000 by women compared to $662,000 by men.
The shift is visible. Today there are more women entrepreneurs than there were five years ago, and their participation is increasing.
The small shift in funding numbers
The numbers are showing a shift even in the investments. According to YourStory Research data, in 2017, 25 only women-founded startups raised $201 million. In the same year, startups with women as co-founders raised $251.28 million across 95 deals.
In 2018, while the number of women-founded startups (that raised funding) rise to 31, the quantum saw a drop of $80.25 million. However, the number of women co-founded startups grew to 103, with a funding amount of $543.93 million.
In 2019, while there was a drop in the number of women-founded startups, the quantum saw a rise of $130.11 million. The number of women co-founded startups was at 120 amounting to $748.27 million.
This year there already are five women-founded companies that have raised $33.34 million, and 19 women co-founded startups that have raised $89.38.
While these are nowhere compared to the funding raised by companies founded by men, there nevertheless has been a noticeable rise and push.
This shows that the times, even if slowly, are changing. Ranjita says,
“In the last few years that we have been raising funds, there has definitely been a positive shift in investors. They are now increasingly becoming open to homegrown hardware companies. They are seeing the value-add and the difference in business models or even "me-too"'s . This could stem from wanting a more diverse and hence a healthier portfolio of investments - and we believe that this is a positive trend. For everyone in the ecosystem.”
Funds shifting focus
Apart from funds focused for women entrepreneurs like She Capital being formed, investors like Sequoia India Partners, Blume Ventures, and Matrix Partners are closely looking to bridge this gap.
Sequoia-funded company, an eCommerce platform based out of Southeast Asia, is founded by Ankiti Bose, and Dhruv Kapoor is a unicorn. One investor, on the condition of anonymity, sites that the number of pitches that come in from women-led firms is lower than those by men.
But that is changing. Avnish Bajaj, Founder and Managing Director, Matrix partners adds that they have over five to 10 percent pitches led by women entrepreneurs, and that number is growing. The eCommerce startup, which has a woman co-founder is funded by Matrix, and so is Chumbak.
“We need to celebrate women founders a lot more. I come from a family of women entrepreneurs. My mother, my wife and even my 14-year-old daughter are all entrepreneurs. At Sequoia India we partner with more than 30 fantastic women-founder led startups,” says Rajan Anandan Managing Director, Sequoia Capital India LLP.
Bringing diversity across the board
While some women entrepreneurs are slowly coming to the forefront, three needs to be diversity across the board, even on the side of the investors.
When Anisha Singh launched She Capital in January this year, the fund was launched by investing in startups which had either women as sole founders or part of the co-founding team.
The fund is focused on investing in early-stage startups, and has a total corpus of around Rs 200 crore. For a few years now, Anisha Singh, Founder of merchant marketing platform MyDala, has been a flag-bearer and champion for women entrepreneurs. During the launch of the fund, she emphasised this gap and said:
“There is a 170-year gender gap between men and women, and this isn’t just in terms of jobs or salaries. The difference is across the board. The idea is also about women investing in women and together building high growth companies. It is not that every company will get funded. The idea is to understand both sides of the table with an unbiased view.”
A Harvard Business Review report stated that women who venture into entrepreneurship are not poised to get a fair deal. It highlighted that bias within the VC industry is preventing funds from being allocated to the best investment opportunities.
To serve this purpose, there are several Valley-based VC funds like Fika Ventures, Urban Innovation Fund, Glasswing Ventures, and Halogen Ventures to name a few. The investment community is slowly becoming aware of this gap.
Avnish says, “We look to build diversity across sectors and lately have seen more women entrepreneurs in consumer brands. It is really up to the founder to decide which sectors they are most excited by – we are very excited about partnering with women entrepreneurs and excited about the increase in this trend.”
Difference in ideas
Avnish adds that women founders can be very positive role models.
“They bring a lot of diversity to the table - both in terms of innovative ideas as well as the teams they build-out. We’ve seen some amazing partnerships getting forged when entrepreneurial women lean in,” he says. Adding to this, Rajan says, “They also make for strong mentors and sponsors for other women founders and leaders.”
A BCG report states that bringing more women into these organisations could mean more creative and unconventional problem-solving, and could help broaden the lens of potential investments.
But while few VCs are changing, many still have biases. A women entrepreneur of a consumer tech startup on the condition of anonymity adds that a particular investor was more focused on how she manages home and work and whether something was being compromised. She added that there was a specific question on pregnancy and mention of a few clauses there.
Rajan added that there is a need for building a stronger support system, he says,
“One of the most compelling thing for a founder is to meet and speak to other founders. We keep saying entrepreneurship is a lonely job. This is even more true for women. It’s important that we help create safe spaces, a community especially for women founders to connect and work with each other. Such informal networks, like the one we are trying to build out through Sequoia Spark, also lets founders get access to people who really care about their success and are willing to invest in it.”
(Edited by Kanishk Singh)