Bumble IPO a victory for the founders, venture capital funds still low

When Bumble CEO Whitney Wolfe Herd, 31, goes public this week, she will be known not only for her youth, but also as one of the few female founders to lead her company to the IPO.

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

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

The market reaction will serve as a litmus test for investments in women-founded businesses.

Today, women make up just 7.4% of Fortune 500 CEOs – a record number but still extremely low. There are even fewer women founders of public enterprises. The Nasdaq estimates that only 20 of the US state-owned companies active today have been floated by their founder.

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

In a 2018 study, the 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 on average.

Despite this, for every dollar of funding invested, start-ups created 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 venture capital funding increased 13% from the previous year, but investments in women fell 27%. Meanwhile, the share of dollars going to female-only founders has fallen from 2.8% to 2.3%, according to data from Crunchbase. This comes as women, often the primary caregivers, would be most affected by the pandemic as a whole.

“Confluence of crises – demands for racial justice, #MeToo, Black Lives Matter, Covid-19 and economic downturn – makes this a critical time for business inclusion, equity and diversity,” Matt Krentz, Managing Director and senior associate of BCG, and co-author of the study, told CNBC. “Of all these issues, Covid-19 may pose the greatest threat to founders.”

The economic benefits of investing in women are well documented. By some estimates, equal entrepreneurial participation of men and women could add $ 5,000 billion to the global economy.

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

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

But all too often, those investments are poorly channeled, according to Tanya Rolfe, managing partner at Her Capital, a venture capital firm run by women and focused on founders in Southeast Asia.

“Women seem to get a lot of extra mentoring, which only suggests that there is something missing from women,” Rolfe said. “What women founders need is simple, and that is equal access to financial investments.”

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

In 2020, women made up just 13% of all venture capital decision makers, according to All Raise, a nonprofit that focuses on accelerating the success of female founders and funders. An estimated 11% of fund managers were women, All Raise said.

“If we want to see diversity at the founder’s level, we have to invest in diversity at the level of capital allocation – the fund manager, like me,” continued Rolfe. “It’s almost more important to invest in venture capital funds with specific strategies for investing in various founders. This is where we’ll see the big change.”

Yet diversified funds continue to face an uphill battle.

With many of them still in their infancy and with little track record, they generally fall outside the investment criteria of institutions, leading managers to seek out often less lucrative and longer transactions with private investors.

Pippa Lamb, partner at startup investment fund Sweet Capital, says this kind of approach needs an overhaul.

“Pricing perceived risk based on a person’s race or gender seems very outdated to me,” Lamb said. “I suspect that the best institutional investors are willing to do the job with full diligence managers, regardless of their appearance.”

“We need more diverse representation in all areas of the startup ecosystem,” she said, citing founders, female board members, female venture capitalists and women institutional investors. “In terms of raising capital, the last two are the most critical, and in particular at the level of the limited partner (LP): the investors of the investor.”

BCG’s Krentz hopes the tide might turn.

“Investors need to understand that current market forces make women-owned businesses very promising opportunities,” he said. “Lack of funding means there is less competition for businesses backed by women, and those businesses, on average, outperform those whose founders are all-male.”

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

“Women can do the same things that male founders do to attract investors,” Rolfe said. “If you are an exceptional founder with a solid business plan and the motivation to prove your execution and your thesis, this should be enough.”