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Women receive a small fraction of venture capital funding and closing the investment gender gap could drive economic growth, according to a new report from Citigroup.
Female-founded companies received only 2.1% of venture capital dollars invested in 2021 in the U.S., according to PitchBook.
“Lack of access to finance is one of the greatest challenges that women entrepreneurs face around the world,” Andrew Pitt, global head of research at Citi, said in the report.
Achieving gender parity in business growth could boost global gross domestic product by as much as $2 trillion, or 2% to 3% of global GDP, according to Citi’s analysis. Gender equality could also generate between 288 million and 433 million jobs, Citi found.
Venture capital is an important form of financing for entrepreneurs, with VC-backed businesses accounting for 43% of public U.S. companies founded since 1979, according to a 2015 report from Stanford Business.
However, women are less like to receive VC funding because lenders often overestimate the risk of investing in female entrepreneurs, according to Citi.
The perception of risk comes even as data suggest female-led businesses have a better return on investment than male-led counterparts. For every $1 of investment raised, women-owned start-ups generated 78 cents in revenue versus 31 cents generated by male-owned companies, according to a BCG report.
The gender disparity in VC investments also derives from an underrepresentation of female VC investors, Citi said. Just 4.9% of U.S. venture capital partners are women, according to a 2020 report by Women in VC.
“Much of this is driven by the fact that investors are predominantly men while many of the women who are in the industry are often not in roles that allow them to make a funding offer,” the Citi report said.
In fact, female VC partners are three times as likely as male investors to fund companies with a female CEO, PitchBook found.
Women of color receive an even smaller sliver of venture capital. Just 0.6% of U.S. VC investments have gone to Black women since 2009, according to an analysis by ProjectDiane.
Recommendations for financial institutions
Citi laid out several recommendations for venture capital firms and other financial institutions to improve opportunities for women entrepreneurs.
Firms should collect gender-disaggregated data on investment portfolios, update investment instruments with a gender lens, and ensure start-up incubators are inclusive, among other Citi recommendations.
Citi researchers also said firms should collaborate with associations and networks of female entrepreneurs, set targets for the inclusion of women founders, and support female employees within the financial services industry.
“Let’s all strive to act upon the findings of this report,” Pitt said.