Sorry, Women Don’t Make Better Founders Than Men

Two things we often hear in the startup ecosystem are:

  1. “Female founders receive less than 5% of venture capital funding”, and
  2. “Women-owned startups deliver twice as much per dollar as men.”

The former statement is absolutely and irrefutably true.

The latter statement, widely shared by DEI advocates without much humility and accepted widely without much scrutiny, is demonstrably false.

The Origin of the 2:1 Claim

Firstly, there is a fast-growing army of incredibly successful female founders that prove that women can break through glass ceilings and reach the very top of the startup world, that we can, and should learn from.

Just a handful of these inspiring women can be found below.

This article is not an attack on the abilities of women to build world-beating startups — it’s been proven that they are just as capable as their male counterparts in this regard.

This article is an attack on the intellectual dishonesty that seems to be permeating much of our increasingly politicized and polarized world.

Startup founders are told to be intellectually honest and objective when it comes to their products, A/B testing hundreds and thousands of assumptions to get to a business model resembling reality and get closer to product-market fit.

But when it comes to politicized topics like gender, we are simply supposed to nod and agree, despite obvious flaws in claims being made for fear of being labeled misogynistic or bigoted.

So, where does the claim that women-owned startups deliver twice as much per dollar come from?

It traces back to a six-year-old study conducted by BCG in partnership with startup incubator MassChallenge and a single assistant professor at the USC Marshall School of Business.

As far as studies go, this one wouldn’t make it into a reputable journal. There is simply so much wrong with this study to draw any real conclusions from.

Insufficient sample size with possible selection bias

The report begins by stating that MassChallenge has incubated 1,500 companies that have collectively raised $3B.

However, in the fine print, it reveals that only 350 companies were selected for analysis.

Why only 350? The report doesn’t say.

Not only that, but of the 350 only 92 were founded by women.

This selection represents little more than 20% of the accelerator’s alumni, raising questions about the criteria for inclusion.

Moreover, 350 companies is hardly significant when you consider that over 42,000 startups raised capital in the past year alone, according to Crunchbase.

This sample size is less than 1% of that annual total, making it insufficient to draw broad sweeping and irrefutable conclusions from.

Not venture-scale returns companies

Venture capital is a power law game.

VCs invest in companies that have the potential to return not just 10X but beyond 100X, paying for the numerous failures and also-rans in a portfolio and generating an overall fund return of at least 3X to their limited partners (their passive investors in the fund).

We’re talking about companies that eventually exit through private sale or IPO for hundreds of millions to billions of dollars.

The BCG report curiousy looks at companies generating on average less than $1M in revenue (below) — essentially on par with a successful small business.

These are not venture-scale returns.

VCs do not consider it a success when a portfolio company is generating $730,000 a year — something that would value the company at about US$4M, or one-third the typical Seed stage startup valuation in the US.

BCG’s report is focused on insignificant revenues as far as venture capital is concerned

Venture-Scale Returns amongst Top Incubators

According to PitchBook, MassChallenge has produced far fewer unicorns compared to giants like Y-Combinator.

If we’re going to be intellectually honest, we need to look at the venture-scale returns top incubators are generating.

Y Combinator has funded over 5,000 companies since 2005.

Their top 15 companies alone, below, generated the lion’s share of their returns.

Airbnb is today worth US$94 billion.

Stripe is today worth US$65 billion.

DoorDash is today worth US$45 billion.

These are venture scale companies.

All but one of these top alumni (Gingko Bioworks) were founded by exclusively male teams.

Below is a chart further illustrating the returns on top Y-Combinator’s top companies.

Techstars, the second most popular and successful startup accelerator, shows a similar pattern.

Its first eleven unicorns, below, were all exclusively male-founded.

Even MassChallenge’s biggest alumni (below) were almost exclusively founded by male teams.

Let’s cast an even wider net and look at the tech companies atop of the S&P500.

As far as returns go, these are the companies practically holding up the entire S&P500 from self-combusting right now.

Are we going to ignore all of this, and instead keep referencing the BCG study of 350 companies generating, on average, a meager $730,000 a year?

The Quota Debate: Meritocracy vs. Diversity

The idea that venture capital funds should introduce quotas is laughable.

VCs have a fiduciary duty to their investors to generate returns, not to play politics with their money.

Blackbird Ventures, Australia’s most successful venture fund, has this to say about quotas on its website:

  • It’s important to have and be seen to have a purely merit-based selection process.
  • Quotas could lead to resentment of female founders by male founders.
  • Quotas undermine a female founder’s belief in her success.
  • A democratic, mentor-driven voting process ensures the best teams are selected.

Blackbird’s stance didn’t prevent them from investing in one of the most successful female founders of all time — Melanie Perkins of Canva, responsible for the majority of the firm’s outlandish returns and growth.

The Meritocracy Approach: Voices from the Industry

Alexandr Wang, CEO of Scale AI, recently stated that his company hires based on a purely meritocratic process.

His sentiment echoes Blackbird’s position on quotas:

“We treat everyone as an individual. We do not unfairly stereotype, tokenize, or otherwise treat anyone as a member of a demographic group rather than as an individual. We believe that people should be judged by the content of their character — and, as colleagues, be additionally judged by their talent, skills, and work ethic. A hiring process based on merit will naturally yield a variety of backgrounds, perspectives, and ideas.”

This approach, he suggests, ensures that the best talent is selected, fostering diversity without compromising on quality.

The Pipeline Problem: Biology or Systemic Challenges?

When it comes to why females receive less funding than men, there’s no doubt some systemic challenges and implicit bias at play.

However, there’s also an oft-overlooked pipeline problem.

I ran a corporate startup accelerator, Collective Campus, for over five years.

We ran 15 programs and put 100 startups through our programs.

Of the more than 1,500 applications we received to our programs, about 80% were from male founding teams.

When you look at website traffic to popular venture websites, about 70% is attributable to males.

It stands to reason that when the people seeking out funding are predominantly male, that the people getting funding will be predominantly male, too.

Legitimate research published in reputable academic journals — here’s just one of many such studies — suggests that women might be more drawn to roles involving people rather than things, and jobs that are considered more typically ‘female’, possibly due to biological differences and temperment.

For instance, women make up about 88% of nurses and midwives, but nobody complains that men are unfairly represented here. Or the fact that only 5% of mechanics are women?

Even if the MassChallenge numbers were conclusive, which let’s not kid ourselves, they are far from being — who’s to say the numbers would scale?

If ten, or even two-times as many women receive funding, would the so-called 2:1 return ratio still hold? We won’t know unless we run that experiment.

Getting More Females Funded

If we are serious about not only getting more females funded, but getting them to be successful too (remember, about 95% of funded startups fail), we need to seriously consider what we do about:

  • The pipeline problem — getting more women interested and active in the startup ecosystem, if that’s what they truly want to do
  • Behavioral differences that might hold women back from getting funding — Sheryl Sandberg highlighted some of these attributes — such as a lack of assertiveness and being too agreeable — in her book Lean In (the downside here however is moving women away from their femininity and getting them to embody more masculine dispositions, which might have its own harmful outcomes)
  • And factors such as implicit bias at VC firms and the DD performed on startups
  • Plus there’s probably a whole range of other factors I’m not even considering that we either have control over or don’t

To ignore all of this, and instead arbitrarily aim for meeting quotas will do more harm than good in the long-run.

Conclusion: Towards a Merit-Based Ecosystem

By perpetuating false ideas around gender-based performance, we’re serving to breed resentment amongst both men and merit-driven women, as well as compromise the ability of venture capital firms to do their jobs — generate returns on capital invested.

Furthermore, if you want men to truly support these movements, above and beyond empty virtue signaling or lip biting, then don’t gaslight them with cherry-picked data that doesn’t stand up to a second of scrutiny.

The narrative that female founders are inherently better than male founders is overly simplistic and not supported by robust data.

While promoting diversity is crucial, it should not come at the expense of meritocracy, nor should it come at the expense of intellectual honesty.

By fostering a truly meritocratic ecosystem, we can ensure that the best people get funded, regardless of gender, race, sexual orientation, or political beliefs.