How Women Invest has raised a $10 million venture capital fund to invest in startups with female founders. The fund is run predominantly by female investors, over half of whom are women of color, and they aim to disrupt the “antiquated, unequal landscape of the venture capital system that typically excludes women startup founders.”
The new fund provides capital, mentoring, and a network of influential female leaders to support female startup founders, especially women of color. The first close of $5 million happened in just four months, and the partners credit the fund’s creation to their network of professional, collaborative, and community-driven female leaders, who represent board directors and senior executives.
Female-led startups have better returns
Research shows that greater diversity yields higher returns. Startups with a female founder generated 78 cents of revenue for every $1 of funding, while male-founded startups generated 31 cents, according to a Boston Consulting Group (BCG) study of 350 startups. Private technology companies led by women are more capital-efficient, achieving 35% higher return on investment (ROI), and — when venture-backed — 12% higher revenue than startups run by men, according to the Kauffman Foundation. But Pitchbook research shows that only 2% of all venture dollars are allocated to startups owned and led by women.
Julie Castro Abrams, managing partner at How Women Invest and founder of sister organization How Women Lead, said in an interview with VentureBeat that she previously ran a micro-finance company that helped 6,000 women get funding for their small businesses. She started a sister group, How Women Lead, that has now grown to 13,000 members.
Castro Abrams teamed up with Erika Cramer, who became a managing partner at How Women Invest. “We had this marrying of the minds,” Castro Abrams said. “It was a moment in time where it felt like everything came together.”
Cramer said in an interview with VentureBeat that the fund will focus on “gender lens investing.” The mission is to bring more female investors from diverse backgrounds to the table.
Cramer is investing in the fund with proceeds from her own liquidity event — the sale of her interest in a female-owned investment banking boutique, now an affiliate of Raymond James. “I’m a first-generation American and the first one to complete a four-year college degree,” Cramer said. “This is a big deal for me personally.”
Women investing in the How Women Invest venture fund believe there is an opportunity to identify female founders with creative solutions, an opportunity often missed by male venture capitalists. The organization aims to inspire a community of 1,000 first-time female investors by the end of 2020, launch Fund I (a $10 million venture fund for up to 249 limited partners), and create the infrastructure to enable women of all backgrounds to support underrepresented and undercapitalized female founders.
Why aren’t there more female founders?
Asked why there are so few female founders, Castro Abrams said, “One reason is women are asked different questions. [When they raise money], they’re asked questions about risk management, and men are asked in those interviews with venture capitalists about upside potential.”
Women also aren’t well-represented within venture firms, where they could learn more about investment decisions, build trust with others in the startup ecosystem, and decide to back women they trust.
“If you don’t have women and women of color as investors, you’re going to have fewer people who get you and will invest in you because they understand what you’re trying to accomplish,” Castro Abrams said. “And so one of the biggest differentiators with this fund is that women of color are at the center of this. They’re not an afterthought. Over 50% of all of our women investors are women of color.”
Investing in female-led startups has a ripple effect on the whole ecosystem. Companies that count a woman as a founder will hire 2.5 times as many women as startups with all-male founders. And when all the founders are women, they hire 6 times more women. This is even more important during the economic downturn, when women have been hit hardest with layoffs, Castro Abrams said.
The fund is capped at $10 million because that’s the regulatory limit for funds with no more than 249 limited partners (those who have invested in the fund). How Women Invest has recruited 249 women as limited partners and is depending on them to help vet startup pitches.
“This is what systemic change looks like,” said Nicole DeMeo, a Silicon Valley veteran who is also a fund adviser and limited partner, in an interview. “It has women at all points in the ecosystem, from investors to the mentors to the boardroom.”
It’s harder to vet people during the pandemic since it’s not possible to meet in person. But the founders said they’re generally able to tap their network to find people who are familiar with the entrepreneurs interested in pitching to them.
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