The State of Venture Capital for All-Women Teams: A Closer Look
Last year, U.S. startups with all-women teams received a mere 1.9% of the total venture capital allocated, amounting to around $4.5 billion out of approximately $238.3 billion. This statistic, drawn from the latest PitchBook data, highlights a troubling trend in the venture capital landscape. The percentage represents a notable decline from the 2.4% raised by all-women teams in 2021, a drop that many analysts attribute to the challenging economic climate of the past year.
Historical Context and Economic Factors
The decline in funding for all-women teams is not an isolated incident. In fact, aside from 2016, the last time all-women-led startups raised such a low percentage of funds was in 2012. That year also saw a downturn in funding, driven by economic uncertainty and political factors, including an election cycle. The cyclical nature of venture capital funding often mirrors broader economic trends, and the current bear market has led many investors to adopt a more conservative approach.
The Gender Dynamics of Funding
Interestingly, the dynamics shift significantly when the definition of a team expands from "all-women" to "at least one woman founder." When mixed-gender teams are included, the percentage of funds raised skyrockets to 17.2%. This stark contrast underscores a troubling reality: the presence of a male founder is often perceived as a stabilizing factor, leading to increased investment. This trend has remained consistent for at least a decade, raising questions about the biases that persist in the investment community.
Voices from the Industry
Ruth Foxe Blader, a partner at Anthemis Group, articulates a common sentiment among industry insiders: “When the economy tanks, discrimination feels justified.” She notes that investors often double down on what they perceive as "safe" investments, which unfortunately tends to exclude women-led ventures. Blader emphasizes the need for Limited Partners (LPs) to look beyond manager diversity and examine their investment portfolios to effect meaningful change.
Positive Developments Amidst Challenges
Despite the overall decline in funding for all-women teams, there are glimmers of hope. The capital invested in female-founded companies, including those with mixed-gender teams, reached its second-highest level, only surpassed by the record-breaking year of 2021. The deal count for all-female-founded teams also remains robust, with 1,001 closed deals last year, just shy of the 1,190 closed in 2021.
Geographically, the Bay Area continues to be the leading region for all-women teams seeking funding, with New York closely trailing. Interestingly, New York leads in deal count for all-female teams, followed by the Bay Area and Los Angeles.
A Global Perspective
While the 1.9% of VC funds raised by all-female teams in the U.S. is disheartening, it is slightly better than the situation in Europe, where the percentage hovers around 1.1%. Despite cultural differences, both regions share a common challenge of gender discrimination in venture capital.
Systemic Issues and Personal Experiences
Olivia DeRamus, founder of the social network app Communia, highlights the systemic issues that hinder progress. She points out that deeply entrenched biases against women persist, making it difficult for female founders to gain the recognition they deserve. “It’s a constant battle just to be taken seriously,” she explains, emphasizing that women often create solutions for problems they experience firsthand, which may not resonate with male investors.
DeRamus has chosen to focus on earning revenue earlier in her business journey, opting for a more measured growth trajectory rather than rushing into fundraising. This decision reflects a growing awareness among female founders about the challenges of navigating a biased investment landscape.
The Need for Change
Kelly Ifill, founder of the fintech company Guava, echoes DeRamus’s sentiments, noting that the drop in funding for women founders is not surprising. She emphasizes the need for reflective work to overcome unconscious biases and to consider nontraditional backgrounds. “Venture is exclusionary by definition,” she states, yet she points out that women-led businesses tend to have a higher rate of success over the long term.
Despite the data supporting the viability of women-led ventures, the reality remains that many investors are driven by biases rather than facts. As the venture capital landscape continues to evolve, addressing these systemic issues will be crucial for fostering a more equitable environment for all founders.