Late last year, a report from PitchBook revealed that although female founders were navigating an extremely volatile market with lower median burn rates, greater early stage valuation growth, and lower late stage valuation declines as compared to their male founder peers – female-founded companies represented only about 25% of total VC deal count in 2022 (a slight reduction from 26% percent in 2021). Reflection on these data points begs the question: why aren’t women founders and entrepreneurs getting a fair shake when it comes to VC fundraising and investing?
The numbers tell a sobering story. Women remain seriously under-represented both as venture-backed entrepreneurs and as venture capital investors. According to a recent Harvard Business Review article addressing the fundraising landscape for female VCs, companies with female founders account for less than 3% of all VC investments. Moreover, less than 15% of VC check-writers are women.
Will simply increasing the number of female VC partners also increase investments in female-founded companies? It may be more complicated than that, according to HBR's research. Although female investors are twice as likely to invest in women than male investors, an HBR analysis of more than 2,000 venture-backed firms in the US found that women-led firms raising their first round exclusively from female VC partners were actually 2x less likely to close a second round than those who had raised their first round with at least one male VC.
So how can the industry address this kind of bias? For starters, a focus on building diverse teams can help give organizations both the representation and the language necessary to connect with different kinds of founders, customers, and the issues that matter to them both. In addition to building this kind of internal diversity, all VCs have a responsibility to examine their methods for evaluating investment opportunities, being careful to identify whether implicit or attributed biases may be influencing their funding decisions.
And for female founders trying to navigate this rocky landscape, broadening recruitment efforts may be of some benefit, looking for a diverse set of VCs in their earliest rounds of fundraising. We know that in the midst of the recent economic downturn, female founders have been hit particularly hard, with a palpable decrease in funding. Still, female founders shouldn’t sell themselves short, being sure to ask their investors for the amount of capital their companies need to grow.
Even with significant obstacles, female-founded companies are still outmatching the rest of the market for the median time it takes to exit. In 2022, women founders closed more deal value than any prior year, including a previously record-setting 2021. And despite ongoing unpredictable and chaotic economic forces, women founders are consistently building resilient businesses that prove their success at all stages of growth.
Investing in gender-diverse founders, therefore, is not only a wise financial decision supported by troves of recent data, it also has broad, positive implications for the financial services industry and its innovation ecosystems. To support female founders, leaders should continue to funnel resources into mentoring and advising, but also through capital investment in critical early stage and priced rounds and by recruiting other value-aligned co-investors. Ultimately, we need more balance and diversity in venture capital if we want to create stronger, more resilient startups that can make a meaningful impact.