This is a welcome development that holds promise for female entrepreneurs who lack the funds to launch successful businesses.

Currently, the gender gap within venture capital (VC) funding remains a well-documented problem. In the US, only 2.5% of VC-backed startups are led by all-female teams, while in the UK, all-female teams comprised only 10% of investment pitches and only six percent of those receiving funding in 2020.

This begs the question – why aren’t female-led startups receiving the capital they need?

It’s not about “the pipeline”

The deficit narrative on female entrepreneurship is clearly faulty given that a third of businesses are owned by women, including in Europe and North America. This figure leaves much to be desired, but still suggests progress when it comes to including female leaders.

The real issue is the existing bias persisting amongst largely male investors who often prefer to fund all-male teams – a trend which European Commission research termed as “homophily”, or the tendency for investors to fund those from similar backgrounds.

In the words of European Women in VC founder Kinga Stanislawska, largely male financers prefer investing “in founders that are most like them.”

Where women are making an impact

This attitude undermines the important contributions women are making to businesses. A wealth of research has confirmed gender-diverse firms are more successful, generating wider profit margins than those run predominately by men. Despite funding disparities, research from BCG shows female-founded startups generate 10% more in cumulative revenue than less diverse firms. Women-led businesses are also displaying resilience following pandemic-related setbacks in 2020, with Inc. Magazine reporting numerous high-profile exits in the US reaching a record $59bn in value – eclipsing the US market average.

Women are also blazing a trail in several sub-sectors. Lynda Weinman recently sold her eponymously titled Lynda platform, now an edtech unicorn, to LinkedIn for $1.5bn. Meanwhile, Priya Lakhani’s CENTURY Tech secured $6.5m  in funding to help improve children’s education with AI.

The leadership abilities and achievements of female entrepreneurs holds significant implications for the global economy, with additional research from BCG showing female participation within business could boost global GDP by up to $5 trillion – but only when assisted by VCs, in addition to non-profit organisations and corporations.

Without funding from these organisations, we face a missed opportunity with the economic potential of women being overlooked.

We need more female investors

Previous research has shown female investors are more likely to fund firms with gender-diverse leadership. For example, the European Commission study found VC firms with female partners were over twice as likely to fund organisations with female executives, and over three times more likely to invest in organisations with female CEOs.

The potential for returns is significant, with research suggesting VC firms increasing the number of female partners by 10% saw a 1.5% increase in annual fund returns and a 9.7% increase in profitable exits.

However, women are also under-represented in senior VC, with recent research suggesting that 85% of Central and Eastern European VC investment positions are occupied by men, not to mention 93% of partner roles. Women are also under-represented amongst US investors, making up only 21% of those representing investment committee members.

Given the superior performance of female leaders however, it’s clear that investors must recognise the commercial potential of more women overseeing VC funds, angel networks and investor communities. These leaders will be able to provide a much-needed perspective on deal sourcing and opportunity spotting, leading to better outcomes for all.