Diversity and Innovation

22 November 2018

To coincide with our 2018 Diversity and Innovation Business Lunch on 22 November, we did some research of our own into the relationship between diversity and innovation, and why diversity is not just a nice-to-have, but a global economic imperative, particularly in growth industries like the innovation and start-up eco-system.*

The numbers speak for themselves…

THE START-UP GENDER GAP

Women make up around 50% of the world’s population, yet in the innovation economies, women are still woefully under-represented.

Start-ups play a vital role in bringing new products and services to market, opening up export opportunities, creating jobs and delivering economic prosperity for all Australians.

But research shows that tech start-ups and investment remain fairly homogeneous, with female founders still in the minority.

Women make up only 16% of start-up founders globally,** with Australia slightly above average at 22.3%.***

And yet female-led companies have been found to drive three times the returns of companies predominantly led by men.

*Informed by Nicola Hazell, Chief Innovation Officer, SheStarts
**Startup Genome’s 2018 Global Startup Ecosystem report
***Startup Muster 2018 report

GENDER EVOLUTION OF AUSTRALIAN FOUNDERS

While the numbers are in, and have been for some time, showing that organisations that invest in diversity and drive female leadership achieve greater innovation, creativity and investor returns, many still don't have a sense of urgency for addressing a lack of gender equality in their ranks.

What’s more, in the start-up ecosystem, where the most innovative, high-potential businesses of the future of being created, women remain grossly under-represented.

According to Startup Muster’s 2018 report, gender evolution of Australian founders over the past 5 years:

SOME ALARMING STATS

  • According to the Australian Bureau of Statistics, women make up 46.2% of all employees, but in technology roles the percentage of women drops to 28-31%.
  • Just 14% of executive roles in the technology sector are held by women.*
  • Vanessa Doake, co-founder of Code Like a Girl, said women accounted for only one in 10 enrolments in IT degrees.
  • Women still make up less than 30% of ASX 200 listed board representatives**
  • Just 11 of the country’s ASX 200 CEOs are female, and 41 of the nation’s largest companies don't have a woman on their executive leadership.***

*Recruitment consulting firm Davidson Technology
** The Australian Institute of Company Directors
***Chief Executive Women Senior Executive Census

LET’S TALK ABOUT FUNDING…

Capital, in particular, is often identified as one of the key inhibitors to female entrepreneurs succeeding and taking their business forward.

A recent study from Pitchbook, published by Fortune showed that in 2017, only 2.2% of the $US85 billion ($AUS115 billion) of global venture capital funding went the way of female founders, and just 4.4% of deals went to female founders.

The Australian start-up scene fares better than the global average, with a Fairfax study estimating 26% of the companies invested in by nine of Australia’s top investment funds had female founders or co-founders, but we still have a long way to go.

WHY IS IT SO DIFFCULT FOR FEMALE FOUNDERS TO SECURE FUNDING?

Due to there being fewer female investors at the seed and angel stages of start-up investment, there is a corresponding lack of female directors on the boards of early stage start-ups.

Women are also under-represented as general partners in VC firms.

A recent Swedish study has shown venture capital funding is not going to female founders because of biases in the way venture capitalists view criteria such as risk and potential to scale when applied to female entrepreneurs.

According to the Harvard Business Review, studies support the idea that a subconscious bias is at play in the VC decision making process, with actual pitch competitions showing that “investors preferred entrepreneurial pitches presented by male entrepreneurs compared with pitches presented by female entrepreneurs, even when the content of the pitch was the same.”

Through interviews with founders and investors, a Boston Consulting Group study found:

  • The pitches of women founders were subject to more challenges and pushback, and female founders were more often asked to establish understanding of basic technical knowledge
  • Women were more likely to internalise criticism made of their pitch rather than disagree with the investor and argue her case, and men were more likely than women to make bold projections in their pitches which resonated better with venture capitalists
  • Business cases of female-led start-ups were more likely to be based on their personal experiences which could be alien to male-dominated venture capital firms

STUDY SHOWS FEMALE-LED START-UP RAISE LESS, EARN MORE

It appears gender diversity is good for venture capital firms and the start-ups they invest in.

A Boston Consulting Group study found female-founded start-ups raise less than half the venture capital funding of those founded by men, but generate more than twice the revenue.

The results challenge the Australian venture capital and private equity industries, where only 5% of investment professionals are female and only 26% of backed companies have a female founder.

There is an enormous untapped investment opportunity for venture capitalists smart enough to look at the numbers and fund female entrepreneurs.

A diverse set of experiences, perspectives and backgrounds is crucial to innovation and the development of new ideas. The ideas of female entrepreneurs offer vital opportunities for the development of new products, services and creative solutions to major global problems.