Bumble IPO is a win for founders, venture capital funds still low

When Bumble’s CEO, Whitney Wolfe Herd, 31, goes public this week, she will be known not only for her youth, but also as one of the few founders to conduct her company on an IPO.

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

Bumble, whose board is made up of 73 percent women, is due to start trading on Nasdaq Thursday, just days before Valentine’s Day. The company will sell its shares at $ 43 a share, raising $ 2.2 billion from investors. The offer initially values ​​the company at around $ 8 billion.

The market response will act as a litmus test for investments in companies founded by women.

Today, women represent only 7.4% of Fortune 500 CEOs – a historic record, but still an incredibly low number. The founders of public companies are even less. Nasdaq estimates that only 20 of the current active American public companies were conducted through an IPO by their founder.

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

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

Nevertheless, for every dollar of funding invested, start-ups founded and co-founded by women generated 78 cents, while start-ups founded by men generated only 31 cents.

The pandemic has only widened that gap.

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

“Crisis confluence – demands for racial justice, #MeToo, Black Lives Matter, Covid-19 and an economic downturn – makes this a critical time for corporate inclusion, equity and diversity,” Matt Krentz, managing director and senior partner at BCG, and co-author of the study, he told CNBC. “Of all these issues, Covid-19 can pose the greatest threat to the founders.”

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

And now companies and institutions seem to be listening. Many pledged to better support gender equality and the founders.

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

But these investments are often poorly channeled, according to Tanya Rolfe, a managing partner at Her Capital, a venture capital firm led by women with a focus on founders in Southeast Asia.

“Women seem to be the focus of many additional guidelines, which just suggests that there is something missing from women,” said Rolfe. “What the founders need is simple, and it is equal access to financial investment.”

This requires greater diversity at the level of the fund manager, Rolfe said.

In 2020, women made up just 13% of all venture capital decision makers, according to All Raise, a nonprofit organization that focuses on accelerating the success of female founders and funders. It is estimated that 11% of fund managers are women, said All Raise.

“If we want to see diversity at the level of the founder, we must invest in diversity at the level of the capital allocator – the fund manager, like me,” continued Rolfe. “It is almost more important to invest in venture capital funds with specific investment strategies for different founders. This is where we will see the material change ”.

However, several funds continue to face an uphill battle.

With many still in their infancy and with little background, they usually fall outside the institutions’ investment criteria, leading managers to seek less profitable and more time-consuming business from private investors.

Pippa Lamb, partner of the early-stage investment fund Sweet Capital, says that this type of approach needs a makeover.

“Pricing perceived risk based on someone’s race or gender seems very outdated to me,” said Lamb. “I would suspect that the best institutional investors are willing to do the job to fully engage managers, regardless of their appearance.”

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

BCG’s Krentz is hopeful that the tide is turning.

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

But until that understanding grows, Rolfe and Lamb’s advice to the founders is simple: Continue.

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