In the days and weeks after I published an article about whether female founders outperform their male-founded counterparts, I received a lot of feedback. Comments from readers, along with my own hindsight, prompted me to look at additional data points. For this follow-up piece, I pulled the numbers on investor returns, step-up valuations from final VC round to exit, and time to exit. But before we get to that, I'll provide some background on the first article and why I chose to expand on it.
For the original post, I examined valuation and exit data. That information shows that among VC-backed companies, those with solely female founders had lower median valuations than those founded by men, and that female-founded companies are acquired much less often. In that article, I expressed disappointment both at those findings and at another well-known disparity between men and women in tech—the extremely low percentage of US venture funding that goes to companies with female founders (about 2.2% in 2017).
But, as is the case with any dataset, there are limitations on the information presented in that article.
By way of example, the first chart in the original post shows that, throughout the last decade, VC-backed companies with all-male founding teams had higher median post-valuations than mixed-gender or all-female founding teams. I used this data point as one proxy for performance because valuation is one of the best indicators available for a company's success, and PitchBook has robust valuation data. But the mere fact that startups founded by women have a lower median valuation than those founded by men doesn't necessarily mean male-founded companies are better performers. One alternative explanation? It's possible that, on average, investors give male-founded companies higher valuations because of unconscious gender biases.
One of the other charts in the post illustrated that a much higher percentage of venture-backed companies founded by men are acquired than those founded by women—about 11% versus less than 1%. Acquisitions often represent a positive outcome for a startup, and they can certainly indicate good performance. What the data in that chart doesn't show, though, is the purchase price at exit or how long it took the companies to be acquired. Some acquisitions provide fantastic returns to investors, but others provide none.
So, how do we figure out whether female-founded companies perform better?
With the aforementioned limitations in mind, I'm using this post to delve deeper into that very question. I collaborated with PitchBook analysts to consider additional data. We expanded the geography from US-only to include all of North America and Europe, and we decided on four new data points, all designed to measure whether the startups that do exit are providing positive returns to their investors:
MOIC (multiple on invested capital, defined as exit value/total VC raised)
Step-up valuation between final VC round and exit
Median time from founding to exit
Median time from first VC round to exit
If you've read my original post on this topic, you'll know I ran into some hurdles while trying to figure out whether female-founded companies outperform male-founded ones. So it wasn't a surprise when the same thing happened this time around: Gathering the new data was a journey. Here's a look at what happened on my second quest to answer the question of whether startups founded by women achieve better results.
Returns for investors
For this piece, PitchBook analyst James Gelfer suggested looking at MOIC, which is a valuable data point for figuring out whether investors receive positive returns. He pointed out that perhaps female-founded companies are acquired at a lower percentage, but it's also possible that when they are acquired, they produce better returns.
Because exit value isn't always disclosed, though, the pool of companies for which we have MOIC information is relatively small. Still, I was hopeful we'd be able to pull out some valuable information. When I first looked at our MOIC data, I snapped to attention: In 2017, the median MOIC for all-female founding teams was 18x, versus 5x for all-male founding teams. But my excitement was abated when I saw the sample size: While we had data for 130 companies with all-male founders, the comparable sample size for female-founded companies was just two. And of those two companies, one of them was Stitch Fix, the Katrina Lake-founded ecommerce startup that had a successful IPO in late 2017. Publishing those numbers without disclosure of the sample size ("Wow! female founders produce way better returns!") would have been misleading, so we decided on a more meaningful way to look at the results.
In the end, we aggregated the data from 2006 to 2017 to increase the sample size. Even so, the disparity in sample sizes between companies launched by women and men is telling in and of itself: The dataset consists of 40 female-founded companies, 1,535 male-founded companies and 719 companies with mixed-gender founding teams. Keeping in mind that imbalance, here's a look at the data:
Median MOIC, aggregated 2006-2017
Because I ran into the same issue for median step-up valuation between last VC round and exit, I aggregated the data for that category as well. This time, the sample sizes are 1,005 all-male founding teams, 26 all-female and 381 mixed-gender. The numbers show that companies with solely female founders do achieve a higher median step-up valuation between their last VC round and exit—but not by much:
Median step-up valuation between final VC round and exit, aggregated 2006-2017
The role of time in measuring performance
Another thing that indicates the success of startups? Time. We took a look at the median number of years between a company's founding and its exit, separated by gender makeup of founders. Then we did the same thing for the median number of years between a company's first VC funding and exit, also separated by gender makeup of founders.
Since 2010, startups founded solely by women have generally had shorter times to exit. In 2017, female-founded companies had a first-funding-to-exit time span of less than four years, while the comparable number for all-male founded companies was more than five years. The charts below provide a closer look:
Median time from founding to exit (years)
Median time from first VC round to exit (years)
This time around, the data shows that in the past several years, female-founded companies exit faster than their male-founded counterparts and have higher median step-up valuations between their final VC round and exit. But on the other hand, the aggregated data discussed above also shows they produce lower returns for backers.
Amid those mixed messages, one thing is clear: Numbers can't give a definitive answer on whether, among VC-backed startups, those founded by women perform better than those founded by men. For one thing, although we know that just 2.2% of VC-backed companies in the US are founded solely by women, we don't know how many female-founded companies aren't included in the dataset because they never received any institutional backing at all. It's also worth reiterating that the sample size for MOIC, even when aggregated over the last decade, is low—it's possible that if more companies disclosed their exit values, the numbers would shift.
Feel free to send me an email or comment below with ideas for additional data points.