Why women-run startups produce more revenue

That female founders receive scraps when competing for venture capital funding is not a unique finding for anyone who’s looked at the statistics.

But a new study finds that sexism not only holds investors back from supporting innovative companies and social progress; it also keeps them from earning a ton of money, according to research from Boston Consulting Group a new study conducted by Boston Consulting Group and MassChallenge, a US-based global network of accelerators.

Researchers investigated the 1,500 businesses MassChallenge has backed since its founding in 2010, seeking to understand how companies founded by women differ from those founded by men. Of the MassChallenge-backed startups—which have raised more than $3 billion in funding, and generated more than $2 billion in revenue—42% have at least one female founder.

The data was clear: Companies founded or cofounded by women garnered an average $935,000 in VC investments, which is less than half the average $2.1 million invested in companies founded by male entrepreneurs. That’s the unsurprising part.

More inspiring: According to BCG’s analysis , startups founded or cofounded by women performed better than male-founded startups over time. Despite being comparatively underfunded—and by a large margin—these businesses generated 10% more in cumulative revenue over a five-year period: $730,000, compared with $662,000 for the average male-led startup.

“In terms of how effectively companies turn a dollar of investment into a dollar of revenue, startups founded and cofounded by women are significantly better financial investments,” BCG concluded in its report on the study. “For every dollar of funding, these startups generated 78 cents, while male-founded startups generated less than half that—just 31 cents.”

These findings are statistically significant, and the researchers ruled out factors that could have affected investment amounts, such as education levels of the entrepreneurs and the quality of their pitches.

Why do women-founded businesses do better?

Well, they’re founded by women.

No, that’s not a joke.

In the world of venture capital, the odds are not stacked in women’s favor. Beyond the abysmal funding rates, just 11% of partners at VC firms are women. But while constant sexism is a drag, underestimation builds both resilience and adaptation—skills male entrepreneurs surely have the capacity to develop, but without the same pressure to do so. According to BCG, that makes all the difference.

Through their analysis and interviews, BCG identified three primary reasons why female founders are less likely to receive VC funds:

1. Women are subject to significantly more pushback when pitching their businesses. Investors routinely presume that women founders don’t have basic technical knowledge, and interrogate such knowledge far more often than they do when interviewing male founders.
2. Male founders are more likely to “overpitch and oversell,” BCG observes, while women are more conservative in their business projections.
3. The vast majority of male investors (92% of partners at the biggest VC firms in the US are men) often have little to no familiarity with the products and services female entrepreneurs are pitching—especially in categories such as childcare or beauty. Often, you don’t like what you don’t know.

Much of feminist progress depends on manipulating restrictions into opportunity. (History check: before she was a US Supreme Court justice, Ruth Bader Ginsburg won legal battles for gender equality by fighting for fathers.) Similarly, instead of wavering in the face of disadvantages driving the funding gap, women reframe them as strengths. For example:

1. The more pushback you receive from VCs, the more chances you have to distill your pitch, refine your business plan, and interrogate your weaknesses—all of which can lead to a better outcome once a business is up and running. As hedge fund founder Ray Dalio of Bridgewater preaches, you can’t succeed unless you “know what you don’t know, and what to do about it.” When women are constantly bombarded with what they don’t know—or what investors think they don’t know—they’re given more opportunities to design around their flaws, whether real or alleged.
2. More conservative business projections indicate a disposition toward making financially responsible decisions. While some women likely could benefit from being more confident in their business prospects or somewhat less risk averse in their outlook, by not overselling they demonstrate both integrity (they’re willing to give investors a realistic picture of success) and logic-based thinking (data-backed projections lead to reliable returns; moon-shot projections, unless you’re a unicorn, which you probably aren’t, lead to disappointment).
3. The less the male VCs know about a product being pitched by a woman, the better suited she is to establish herself as an expert. Investing is all about being ahead of the curve; if you pitch a business men haven’t heard of, you’re opening their eyes to markets—and money—they didn’t know they needed.

History repeats itself—in a good way

The success of today’s female founders shouldn’t be viewed within a vacuum. Since entering the workplace, women have defied expectations, often outperforming men by capitalizing on adaptations they’ve made in even the most toxic industries.

Case and point: Harvard Business School professor Boris Groysberg’s theory on the star women of Wall Street.

After studying the fortunes of more than 1,000 well-regarded stock analysts, Groysberg found several years ago that women who placed high in the annual rankings compiled by Institutional Investor remained “stars” even when they switched firms, while men with similarly high ratings tended to fall in the ranks upon leaving the firms at which they had thrived.

While various factors contribute to this discrepancy—notwithstanding the notion that women who achieve great success in male-dominated industries are probably smarter to begin with—Groysberg found that star female analysts made more calculated career projections before switching firms, much like the more conservative female founders in BCG’s study. “While men tend to concentrate on compensation, women are more likely to weigh multiple considerations in making a move, such as the apparent attitudes of the research director and the existence of female colleagues and role models,” Groysberg wrote in Harvard Business Review.

What’s more, having been excluded from the internal networks at their firms, star women on Wall Street often found strength in their external networks. These connections—with companies on their coverage list, for example—remained strong and portable. Such was not the case for men who perhaps had become stars in part because they had regularly golfed with the right people at their firms.

While sexist biases won’t dissipate anytime soon, there’s power in realizing how hardship engenders iterative improvement, and ultimately, superior success. Especially if you’re a venture capitalist who cares about making a ton of money.