Despite many start-ups not having gender parity on their boards and in the c-suite, those that do go on to be more profitable — and valuable, too, according to a just-released white paper from the WestRiver Group.
The Seattle-based venture firm noted in the report, titled “The New ROI: Exploring The Correlation of Gender Parity and Value,” that it had established four equity funds with “gender-balanced leadership.”
The report comes as industry analysts estimate that there were more than $600 million in investments in retail, beauty and fashion start-ups last year.
The authors of the report stated that empirical evidence “indicates gender-balanced leadership in venture partnerships and within venture-funded enterprises positively correlates with superior financial performance over the long-term, including net internal rate of return, and valuation” that increases. The report found that investments in companies that had at least one female founder were valued “63 percent better than investments in all-male founder teams.”
The researchers cited a variety of sources to formulate these conclusions, including one study by KFRC that looked at 90,000 U.S. VC-backed start-ups from 2001 on. They found that those start-ups with a diverse group of founders “achieve a 30 percent higher realized multiple when they are acquired or go public.”
The WRG report also noted that, of public companies with above-average financial returns, 21 percent are more likely to have gender-diverse executive leadership while 33 percent are more likely to have racially and ethnically diverse executive teams.
Still, most start-ups, 58 percent, don’t have a woman in the c-suite, WRG noted, adding that 60 percent don’t have women on the board of directors.
Erik Anderson, chief executive officer and founder of WestRiver Group, told WWD that when he started “thinking about the next 20 years of WestRiver Group, I identified lack of diversity as an intellectual gap in the market.”
“After careful review of the data, we strongly believe that investing teams with women and men are correlated with better performance,” he said. “We believe it’s a competitive advantage as investors and for our relationships with the entrepreneurs and companies in which we are excited to invest.”