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Women-owned and women-led companies aren’t the same

How we count and tell stories about numbers can proliferate systemic gender discrimination.

In the fields of computer science and math, the expression “garbage in, garbage out” means the quality of the output is only as accurate as the quality of the input. Some of the stories being told about the success of women founders are incorrect because of how data is being collected and

communicated. When “successful looking” (aka inflated) numbers are reported and celebrated publicly, no one questions the methodology. Those responsible for data are not held accountable. So the cycle of systemic gender discrimination continues.

In 2022, more than $238 billion was invested in U.S. startups. Women founders secured less than 2%. That was the lowest percentage of funding women founders received since 2016. A local VC firm recently touted that, in 2022, it invested 15.8% of its funds into women-owned and women-led companies. It reads like the firm was way ahead of last year’s national average. However, the averages are for two different sets of data.

In this particular case, the local VC firm combined women-owned and women-led companies. The national average of 1.9% (of funds invested in U.S. startups founded by women in 2022) is referring only to the money invested in “all women teams,” which means the owners are women. In other words, this is not an apples-to-apples comparison.

There is a massive difference between women-owned and women-led companies, and they need to be counted separately.

In the United States, if 51% or more of a company is owned by one or more women, the federal government considers the company “woman-owned.” If at some point an issue arises and the owner(s) and board/investors have to vote, the female owner(s) have enough equity in the company to determine the outcome of the vote. That is power.

A “women-led” company might have several women in charge making important strategic decisions on a daily basis; however, those female leaders don’t have enough equity in the company to control a board/investor-level vote.

I can’t tell you how many times in the last decade I have participated in pitch competitions where an incredibly smart, articulate, experienced woman would pitch and nail it. Sometimes she would stand solo; other times men would stand behind her nodding with delight, approving whatever she was saying. If I wasn’t certain whether she was an owner, I would ask.

Frequently, the woman pitching was a leader but not a co-founder or co-owner. She typically had a glamorous title like the classics—CEO, COO, CFO, CIO—or something like chief revenue officer, chief administration officer, chief human resources officer or chief marketing/content officer. Most of the time, she didn’t have a single share of equity. The bottom line was that she made the company look great but legally did not have final say—the male founders did.

Down the road, when the company exits (or sells) and has a liquidity event (makes money), the founders and investors get paid handsomely. The “chief of X,” who originally pitched to secure investment, is likely long gone and doesn’t get a penny of what was made in the exit. Owners (often referred to as founders) take on more risk. They stay while others come and go. They are ultimately accountable for the success or failure of a company. And they need to be counted accordingly for their level of responsibility.

Investing firms, grant-making organizations and any entities tracking the success of “women-owned” startups can no longer lump “women-owned” and “women-led” companies into one group. “Women-led” startups might be led by women; however, it’s the men who have final say and signature authority—not women.

Only when accurate data is collected at the relevant level (local, regional, national, international) about “women-owned” companies can the data be compared with other statistics tracking “women-owned” companies.

Last July, the Indiana Economic Development Corp. announced that Indiana will receive up to $99 million over 10 years from the federal government via the 2021 American Rescue Plan Act to provide entrepreneurs and small-business owners the resources they need to grow. The IEDC reports that, “Approximately $70 million of the state’s funding will be directed to accelerating Indiana’s innovative startup ecosystem through direct investments in early-revenue companies.”

To ensure that women founders receive an equitable amount of funding, properly counting how much money is invested in women-owned startups and how many investments are made in women-owned businesses will be critical to meet the requirements of this federal funding.

To evaluate these investments properly, we must track investments made in “women-owned” companies separately from “women-led” companies, because those “women-led” companies are actually “male-owned” companies.

Since women founders yield a higher return on investment than do their male counterparts, it will be crucial for economic development and long-term financial sustainability that women-owned businesses secure this funding so they can create jobs and scale.•

*This article was originally published in the Indianapolis Business Journal on March 17, 2023.


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