Our Economy Needs Female-Founded Startups. Here’s How You Can Ensure They Survive COVID-19
We have a critical window of opportunity in light of this year’s Equity for All® Day (April 10, 2020). If we don’t act decisively now, we could damage our economic engine for years to come.
To put it bluntly, many rational, structurally-sound startups led by women are at risk of closing their doors amid COVID-19’s financial fallout. Being that female-founded startups play an integral role in keeping our economic ecosystem healthy and strong, we cannot let them fail. Our economy needs startups to survive COVID-19.
This is where you can help. It requires no money and you don’t have to leave your house. Keep reading to learn how you can take swift action to ensure our nation’s female-founded startups make it through this dire period of financial distress.
(To jump straight to the instructions on how you can be part of the solution, scroll down to the section “How You Can Help: Four Easy Steps.”)
How Startups Support the US Economy
If the US wants to maintain its reputation of innovative excellence, remain competitive on the global stage, bounce back quicker from COVID-19, and lay the foundation for future prosperity, then we cannot let startups fail due to macroeconomic forces outside of their control.
Consider the facts on how startups fuel the US economy:
1. Startups generate new jobs. High-growth firms represent 15% of all US companies yet are responsible for 50% of all jobs created, according to the 2017 Kauffman Index of Startup Activity.
2. Startups boost productivity. High-growth firms skew young and make larger contributions to productivity increases, according to a 2017 study by the US Census Bureau.
3. Startups create new markets. Example: Rent the Runway, Ellevest, and Airbnb.
Why Female-led Startups Need Access to Capital Now
Unlike many large companies that can weather economic downturns by tapping into cash cushions and financial reserves, high growth is inherent to being a startup. As such, the cash that startups receive from investors (in the form of funding) or generate (in the form of revenue) is quickly reinvested back into the business.
But funding and revenue have quickly dried up as consumers and investors halt their capital flows until they have greater clarity on the COVID-19 situation. New data shows that unless venture capital investors halt their spending, the $150 billion in cash they’re sitting on could disappear in a year.
Perhaps that’s why CB Insights predicts private market funding in the first quarter of 2020 to drop by more than 16% compared to the fourth quarter of 2019, from $92 billion to $77 billion. If their prediction holds, it will represent the second steepest quarterly funding decline in the past ten years.
Under normal conditions, when a business is strapped for cash, it can pull several levers to stay afloat. For instance, it can cut spending, layoff workers, and shrink profit margins.
But for many cash-strapped startups, spending and employee count are already kept at a minimum, and profit margins are usually negative. They had very little “wiggle room” to begin with. And now in the uncertainty of COVID-19, they have almost none.
Strong female-led startups such as Away have already taken drastic measures to minimize expenses in the wake of a 90% decrease drop. Last week, they furloughed approximately 50% of their 500-person workforce and laid off 60 corporate employees.
Startups need access to capital to keep their businesses running. And as research has proven, female-founded startups are in an even greater compromised state than male-founded startups.
Female-Founded Startups Receive Less Funding
Female-founded companies disproportionately benefit the economy yet are disproportionately undervalued by investors.
Here’s the data that supports this statement:
The value of female-founded companies:
- Startup teams with at least one female founder provide 63% better investment returns than all-male teams.
- Female-founded startups generate 78 cents for every dollar invested in their companies. Male-founded startups generate 31 cents for every dollar invested.
Gender inequity in venture capital:
- In 2019, male-founded companies received 97.3% of all venture capital funding.
- In other words, less than 3% ($3.54 billion) of funding went to companies founded by women. That’s less money than one company, WeWork, received in the same year.
- The average investment for female- or female co-founded companies is $935,000, whereas the average investment for male-founded companies is more than double: $2.1 million.
On top of this, 50% of women versus 31% of men say that the most important factor in choosing a career is “feeling like the work I do makes the world a better place/has a wider impact.” As such, businesses with female leadership are more likely to drive meaningful social change.
How You Can Help: Four Easy Steps
We the People have a voice, a duty, and an upcoming election. To ensure the solvency of female-founded startups post-COVID-19, you can contact your policymakers and ask them to allocate funding for female-founded startups.
This funding is NOT a handout. It is an investment in our economic recovery. In fact, venture capitalists who commit to gender equity could expand projected returns to their LPs by $4.4 trillion.
We have to act swiftly to remind our elected officials about this important segment of the economy. If you want to take action today, follow these four easy steps:
- Locate your leaders in Washington D.C. You have two Senators and one Representative at the national level.
- Call your Senators and Representatives to request a meeting. You want to discuss the urgency of allocating more economic stimulus specifically for female-founded startups through forgivable SBA loans or grants. Use the data on this page as your guide. (Note: At the time of this publishing, a $2 trillion economic stimulus package had already been passed with $350 billion allocated for small business loans. Talks were in place to secure another $250 billion for small-business relief.)
- Remind your elected officials how startups benefit the communities they represent by increasing employment opportunities, household income, and local tax income.
- Call back weekly until you have resolution on your requests.
The decisions we make today will influence our economic recovery tomorrow. You can choose to be a hero from your home. You can be part of the solution. Now is your time to be brave.
This article originally published on my website.