Goldman Sachs Is Investing $500 Million In Female-Led Startups — Will It Work?
Goldman Sachs will invest $ 500 million into companies led, founded or owned by women. The program will also help clients invest directly in private, late-stage companies or provide seed capital for women starting their own funds.
If this sounds familiar, it’s because it is. The investment bank made a similar announcement when it launched its 10,000 Women Initiative. Goldman Sachs began the program in 2008 with an initial $ 100 million commitment to provide business and management education for women-owned small businesses in developing countries.
“The global economy is propelled by innovation, creativity and the sharing of diverse perspectives,” said Stephanie Cohen, Goldman’s chief strategy officer, in a statement. “Effectively shutting out half the population from conversations at the highest levels of business is holding everyone back.”
As it stands today, the industry stats are dire — less than 2% of all venture capital goes to female founders and fewer than 8% of investors are women. Goldman’s move is part of a larger bet that non-traditional founders can bring outsize returns.
XFactor Ventures invests in companies with at least one female founder in their ranks, Female Founders Fund backs female-founded tech companies, Backstage Capital invests in companies founded by underrepresented entrepreneurs, BBG Ventures invests in startups with least one female founder, and Melinda Gates’ Pivotal Ventures is putting money behind female-led or minority-focused venture firms.
The strategy isn’t new. However, female-led and female-focused firms are relatively small when compared to the more traditional firms on Sand Hill Road. In other words, a $ 50 million fund has less cash to dole out than a $ 500 million fund.
While female- and minority-led companies could technically be well-funded in the early stages of the venture process, the funding tends to dry up as founders go out to raise further capital necessary to grow. As Backstage Capital founder Arlan Hamilton told Fortune in January, “The reality is that the best and brightest and most deserving — even with the numbers, even with the traction — are being shut out. So I don’t know the answer to that until the larger investors really take this seriously and put money behind it.”
This is the gap that Goldman Sachs could potentially help fill. Armed with a $ 500 million war chest, the investment bank could write larger checks and pump additional capital into companies trying to get to the next level. In this case, financing stage and check size matter. It’s unclear whether this is Goldman’s strategy, but that could be the most efficient way to begin closing the gender funding gap.
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