Why I’m pivoting my fund to invest in women-run companies

Gili Elkin from the Israel - Colorado Innovation Fund says after taking more than 700 meetings with start-ups, she found that fewer than 10 had female CEOs. Here’s what she's doing about it.

As the founding general partner of a US-based venture firm, I’m taking a firm stand with my next fund. Going forward, at least half of the fund’s portfolio companies will have at least one female founder.

Not only this will encourage female entrepreneurs to start their own businesses and prompt male founders to partner with them, it will also increase the fund’s return on investment. It is simply a solid business decision.

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Gili Elkin, Israel – Colorado Innovation Fund

Women-led firms contribute almost $3 trillion to the US economy and underpin about 23 million jobs, according to the World Bank. What’s more, the ROI for private tech companies led by women were 35 percent higher than those led by men alone, according to a 2011 report by the Kaufmann Foundation.

In analysis of its own holdings in 2015, First Round Capital found that companies with female founders outperformed companies with male founders by 63 percent.

In the US, women account for 40 percent of all entrepreneurs, but receive only 3 percent of total start-up investment. Unless we invest more in women-led companies, we are leaving a staggering amount of potential on the table

I’ve spent the last seven years traveling the US and Israel in search of investors and great businesses to fund. Every year, I review between 150 and 200 pitches. Of the 700 total companies I’ve met with so far, fewer than 20 had a female founder; less than 10 were led by a female CEO.

That is a disservice to investors and to the economy at large. Cumulative revenue of companies founded or co-founded by women was 10 percent higher than revenue generated by male-led firms over five years, according to a 2018 report by Boston Consulting Group and accelerator network MassChallenge.

The report also found that “Start-ups founded and co-founded by women are significantly better financial investments. For every dollar of funding, these start-ups generated 78 cents, while male-founded start-ups generated less than half that – just 31 cents.”

More POV needed

Companies with no women are excluding important points of view. To succeed in today’s complex business environment, firms need managers who consider different perspectives and possibilities.

In my conversations with other VC partners, I often hear they share my views. Sarah Lucas, a partner at Celesta Capital, expressed to me in an email: “In my experience, female founders tend to be more communicative, efficient and fiscally disciplined as well as extremely collaborative.”

I am acutely aware that my own venture capital industry suffers from the same problem. Two-thirds of all US venture capital firms don’t have a single female partner; only 14 percent have two or more women partners.

To right the balance, VCs must step up. Firms with at least one woman partner are 34 percent more likely to invest in a company that had a woman in management, compared with 13 percent for firms without a woman partner, according to a 2017 Harvard Business Review report.

Investments should reflect the population

The percentage of investment in female-led businesses should equal that of male-led businesses to reflect the population ratio. Anything different cannot be accepted in the 21st century. I am determined to make this a reality. At least 50 percent of my fund’s portfolio companies will have at least one female founder. I encourage all VCs to consider adopting this goal.

This commitment is the only way to be true to my beliefs, my business experience and my aspiration to change the world.

This is also the only way to run a successful fund. I believe we can increase investments in female-led funds, boost the number of female-led businesses, escalate the number of women starting their own businesses, accelerate economic growth and pivot 21st century business practices to an equitable playing field for women and men.

Gili Elkin is a co-founding general partner at Israel – Colorado Innovation Fund in partnership with Innosphere Ventures

Update: This story was updated to reflect the name change of the firm where Sarah Lucas is a partner: Celesta Capital