Investing in Women-Led Edtech Startups Is More Than a Matter of Equity. It’s Also Good Business.
February 13, 2020
By Jessica Haselton, ECMC Foundation; originally published in EdSurge
When no female directors were nominated for the “Best Directors” Oscars category this year, Bette Midler called for a new awards ceremony, the Osc-hers.
The entertainment industry is hardly alone in overlooking some of its top talent. Each and every year, top-notch education technology found-hers are passed over by investors—to the detriment of an industry in need of disruption and new ideas.
Consider Guild Education, an online education company led by Rachel Carlson and Brittany Stich, which reached the highly coveted unicorn status in November 2019. They became only the fourth education company in recent years to be founded by women and valued at over one billion dollars. Out of 575 unicorns.
According to one study of edtech accelerators, 30 percent of education startups have at least one woman on their founding team women—nearly twice the percentage of ventures started by women across other technology sectors.
But like their peers in other industries, edtech found-hers obtain a disproportionately tiny slice of overall investment capital. Only between 2 to 6 percent of companies started by women receive venture capital funding. For women of color, the statistics are even more sobering: Roughly 0.32 percent of funding awarded over the past decade went to Latin American women; and for African American women, the number was an infinitesimal 0.0006 percent.
The capital is out there. In 2018 alone, total startup funding in the United States reached $150 billion, raised through 8,200 startup rounds. But like the entertainment industry and so many others, women-led enterprises continue to be overlooked.
The industry is long overdue for a change. Investors need to begin thinking more equitably about not only what they are investing in, but also who. A strong early investment in edtech found-hers is not only the right thing to do, it has a history of generating long-term benefits for stakeholders as well as students.
Investors needing more convincing should consider the follow reasons to invest in an edtech found-her:
1. It’s good for business.
Having more women in executive roles benefits the corporate bottom line. Companies with women in at least half of leadership positions deliver higher sales growth, earnings per share growth, and return on assets, according to a Credit Suisse report.
Female founders also have a greater positive impact on startups’ revenue compared with their male counterparts. In fact, one study showed that, for every dollar of venture capital funding received, women-led businesses generated 78 cents. For businesses launched by men, the return was 31 cents.
2. It helps close the financing gap.
The equity gap in fundraising starts early. For women-led ventures, the largest investment discrepancies are felt at the earliest stages of a company’s life.
Investing early in women-founded businesses can make a difference not only in initial financing, but in future rounds as well. That’s because, once funded, the percentage of women-led startups that raise additional rounds of capital at later stages is nearly identical to that of firms founded by men. The gender discrepancy in funding raised during seed and series-A rounds closes significantly by series C and D.
3. It encourages success among women.
Women-led ventures are more likely to hire women. And women-led companies typically have more women across all levels of the company, including executive roles. Nearly half of consumer service firms with women as founders, for example, have women serving in executive roles—compared with only 10 percent of companies started by men.
If the edtech industry truly wants to represent the populations they serve, then female representation in company leadership roles is especially important in higher education. In fall 2019, women accounted for more than 56 percent of students on college campuses, a trend the U.S. Department of Education anticipates will continue.
Why aren’t more people investing in women? Maybe it’s because women are also outnumbered as investors. Data show that women fund managers are more likely to invest in women—and they are more likely to invest early. But recent research shows that women comprise, at most, only 12 percent of investment partners across the venture capital industry.
If we’re going to move the needle on investing in more found-hers, women must have larger and more significant roles in all aspects of the venture capital process. This means increased access to financing for female fund managers and enhanced mentorship and support for female investors.
It’s time to buck the trend. Recently, my organization, ECMC Foundation, partnered with women-led venture capital firm Chloe Capital to tour the country as part of our Invest In Women: Future of Work & Education initiative. Developed to support women-led companies working in college success, career readiness and workforce transformation, the initiative features pop-up accelerators across the country and provides convenient funding and mentorship opportunities for female edtech found-hers.
This is just one step in what must be a broad effort to level the playing field for women-led edtech startups. By establishing robust pipelines of investors funding women-led companies at their earliest stages, and by offering ongoing guidance and support to women establishing edtech firms, we can make the investment ecosystem more equitable for all found-hers.