Bumble IPO is a victory for the founders, with venture capital funds still low

When Bumble CEO 31-year-old Whitney Wolfe Herd makes her company public this week, she will be noticed not only for her youth, but also as one of the few women founders to run her business on the way out. the bag.

It’s a fitting feat for the founder of a dating app designed to put women in the driver’s seat. But it also destroys the still unmatched playing field for enterprising men and women.

Bumble, which has 73% women, is expected to start trading on the Nasdaq on Thursday, just days before Valentine’s Day. The company will sell its shares at $ 43 per share, raising $ 2.2 billion to investors. The offer initially values ​​the company at around $ 8 billion.

The market response will act as a test case for investments in women-founded companies.

Today, women make up only 7.4% of Fortune 500 CEOs, an all-time high but still a surprisingly low figure. Women founders of public companies are even fewer. Nasdaq estimates that only 20 of the current active U.S. public companies were run through the IPO by its founder.

The problem is not the lack of women entrepreneurs, but the lack of support where it matters: funding.

In a 2018 study, Boston Consulting Group found a “clear gender gap in financing new businesses.” According to the research, investments in companies founded or co-founded by women averaged $ 935,000, less than half of the $ 2.1 million average men received.

Despite this, for every dollar of financing invested, companies founded and co-founded by women generated 78 cents, while companies founded by men generated only 31 cents.

The pandemic has only widened this gap.

In 2020, global corporate financing increased by 13% over the previous year, although investments in women fell by 27%. Meanwhile, the share of dollars distributed to all-female founders fell from 2.8% to 2.3%, according to Crunchbase data. This occurs as women, often primary caregivers, are said to be most affected by the pandemic in general.

“The confluence of crises (racial justice demands, #MeToo, Black Lives Matter, Covid-19 and an economic recession) makes this moment a critical moment for corporate inclusion, equity and diversity,” he said Matt Krentz, CEO and senior partner at BCG, and co-author of the study, told CNBC. “Of all these problems, Covid-19 may pose the greatest threat to women founders.”

The economic benefits of investing in women are well documented. According to some estimates, equal business participation between men and women could add $ 5 trillion to the world economy.

And now corporations and institutions seem to be listening. Many have made bold commitments to better support gender equality and female founders.

“Awareness of the funding gap, the impact of various leadership teams is better understood and investors have begun to ask directly about the diversity of founders and leadership teams,” Krentz said.

But too often these investments are poorly channeled, according to Tanya Rolfe, managing partner of Her Capital, a women-run venture capital firm focused on founding women in Southeast Asia.

“Women seem to be the focus of many additional tutorials, which only suggest that there is something missing in women,” Rolfe said. “What the founding women need is simple and is equal access to financial investment.”

To achieve this, greater diversity is needed at the fund manager level, Rolfe said.

In 2020, women accounted for only 13% of all people making decisions about venture capital, according to All Raise, a non-profit organization that focuses on accelerating the success of women founders and funders. It is estimated that 11% of fund managers were women, All Raise said.

“If we want to see diversity at the level of founders, we have to invest in diversity at the level of capital allocator: the fund manager, like me,” Rolfe continued. “It’s almost more important to invest in venture capital funds with specific investment strategies in multiple founders. This is where we’ll see material change.”

Still, several funds continue to face an upward battle.

With many still in their infancy and with little history, they tend to fall outside the investment criteria of institutions, making managers often looking for less lucrative deals and consuming more time from private investors.

Pippa Lamb, a partner at investment fund Sweet Capital, says this approach needs renewal.

“Setting a price of perceived risk based on someone’s race or gender seems very outdated to me,” Lamb said. “I suspect the best institutional investors in its class are willing to do the job of due diligence managers regardless of their appearance.”

“We need more diverse representation in all areas of the initial ecosystem,” she said, citing women founders, women board members, venture capitalist women and women institutional investors. “When it comes to raising capital, the latter two are the most critical, and especially at the limited partner (LP) level: the investor’s investors.”

BCG’s Krentz hopes the tide can change.

“Investors should understand that current market forces make women-owned companies have very promising opportunities,” she said. “The lack of funding means there is less competition for women-backed companies, and on average, these companies perform better than those with exclusively male founders.”

But until that understanding grows, Rolfe and Lamb’s advice to the founding women is simple: keep going.

“Women can do the same things as male founders to attract investors,” Rolfe said. “If you are an exceptional founder with a solid business plan and strength to prove your execution and thesis, that would be enough.”