In 2021, U.S. companies founded solely by women amassed only 2% of the total capital invested in venture-backed startups (Pitchbook). This alarming statistic is often referred to when discussing gender disparity in venture capital funding.
Venture capital (VC) funding is a type of private equity where typically well-off investors provide financing to startup companies and small businesses that they believe will have long-term growth potential. VC is known for being “high-risk, high-reward.”
In spite of receiving less funding, there is overwhelming evidence that female-founded startups outperform male-founded startups. Furthermore, they generate more revenue, earn higher profits, and exit at higher valuations (HBR; All in: Women in the VC Ecosystem). It is vital to note that they achieve this all while receiving far less funding than startups founded by men.
This semester, I am taking a class called “Women in Tech and Innovation” where female leaders speak to us and answer questions from us every week on Zoom. One of these panelists, entrepreneur Jessica Brondo Davidoff, shared that in her personal experience launching companies that targeted women, a lot of male venture capitalists could not personally understand the need. As an entrepreneur, she views startups as a solution to a problem, and male venture capitalists could not understand the problem if it was a problem that affected mostly women. Many of these men would consult their wives and ask them if they felt the need for these entrepreneurial solutions. Still, it makes sense why these male investors would not want to invest in a solution to a problem that they could not fully grasp.
Research also shows that women tend to take less risks than men (Harvard Kennedy School), but when it comes down to it, the main culprit is there is plentiful gender bias in the world of VC funding. Investors, which are typically male in the male-dominated venture capital industry, perceive female-run companies as riskier than male-run companies. Women are not only underrepresented on the founder side of venture capital- they are also underrepresented as investors. At U.S. venture capital firms with funds greater than $25 million, women make up a mere 13% of partners. Additionally, 64% of U.S. venture capital firms have no female partners at all (Crunchbase; All Raise).
When women work with male co-founders, they tend to raise funding. According to the same Pitchbook dashboard of statistics, teams made up of both female and male founders received 15.6% of total venture capital funding in 2021, a significantly larger statistic than 2%.
If there’s one lesson The Women’s Network taught me, it is that many accomplished, driven women want to help other aspiring driven women, because they personally know the struggles of succeeding as a woman. Similarly, many accomplished female venture capitalists want to support aspiring female entrepreneurs. Statistically speaking, it has been demonstrated that female investors are up to 3x more likely to invest in female-founded startups (The Power of Diversity: Why Homogeneous Teams in Venture Capital Are Bad for Business). In particular, if you are starting a company as a solution to a problem that is mostly faced by women, female venture capitalists are more likely to understand the need behind your product or service. Some examples of female-founded investment firms that seek to invest in other women listed on Pitchbook include The Jump Fund, BBG Ventures, Halogen Ventures, Avestria Ventures, and Female Founders Fund.
Another possible reason for the gender gap in venture capital funding is that typically male VC investors tend to have a main goal of growth and exit strategies. Contrarily, female entrepreneurs tend to found companies that favor more sustainable, steady growth and maximize benefits for their stakeholders (Forbes). As such, another alternative is to look at other methods of funding other than venture capital. For example, crowdfunding and targeting investors other than big angel investors are other potential substitute funding methods.
If you are a woman interested in becoming an entrepreneur or working at a female-run startup, it is important to note resources like these. In addition, you should not be discouraged by the 2% statistic. Women like Jessica Brondo Davidoff, Emily Weiss of Glossier, and Jennifer Hyman and Jennifer Fleiss of Rent the Runway have successfully funded and launched their companies. Having the knowledge about the difficulties of securing venture capital funding as a woman is meant to help you, not discourage you. Keep in mind when pitching to potential male investors that they may not be able to relate to your target audience, and always keep in mind that it may benefit you to seek out female investors and female-run investment firms. When pitching to men, it is important to emphasize the need for your product or service and explain the importance of the problem, particularly if it is one they do not face as a man.
Cover image courtesy of https://dailynewsegypt.com/2019/12/21/to-date-egypt-has-closed-only-62-9-of-its-gender-gap-ranking-134-wef/
