A Record-Breaking Year for Venture Capital Still Falls Short for Women Founders

By the end of 2016, Doreen Bloch was feeling jaded by the double standards that came with VC fundraising for men and women.

After two years of bootstrapping funds for her beauty data company and an additional two years after that pitching to VC firms, Doreen, the founder and CEO of Poshly (now Lucky Analytics) kept running into the same answer from investors at every turn.

“We like the idea. But it’s too early.”

The first few times she pitched to investors and was turned down, she figured there was sound logic behind it. She used the rejection as fuel to prepare for the next pitch, drilled down on her numbers, and tweaked her presentation to best sell her cosmetics analytics company. But when she was hitting key metrics and kept getting the same response, she started to take a look around at her male counterparts in big VC firms’ portfolios.

“You always kind of leave with your head-scratching, because you're looking at their portfolio companies and are like, ‘Wait a second, you're investing in things that would burn out of cash really fast, don’t have any customers and don’t have product-market fit. Why are you investing in those companies?’”

By 2016, Doreen was able to raise $3.75 million for Poshly, but her personal experience is indicative of a larger systemic problem. Female-founded companies have always gotten less VC funding than male-led companies. As more women enter the startup ecosystem, the disparity has been slowly closing, but last year marked a jarring setback.

Despite the pandemic, 2020 was a record-breaking year for venture capital. But out of the $143 billion of VC funds that U.S. startups raised last year, only 2.3% ($3.2 billion) went to startups led by women, according to a Crunchbase study released last week. This marks a drop from 2.6% ($4.2 billion) of funding in 2019, a peak year for female founders.

Here’s another way of looking at it: Robinhood raised more capital in its latest funding round than all women-led startups did in 2020 combined.

Crunchbase’s senior data reporter Gene Teare says in her article that there wasn’t a downturn in the number of female-led startups pitching this year, however, the startups that did receive the biggest chunk of change were repeat founders which have historically been men. COVID-19 also could’ve played a role here, with a McKinsey report from September finding that one in four women considered leaving the workforce this year due to the pandemic, compared to one in five men.

While there were slightly higher funding totals for women on co-ed founding teams, startups with any female founders still saw a decline in VC funds — 11.6% of VC funds went to co-ed teams in 2019, which dropped to 10.8% in 2020. Teams with all-male founders, in comparison, saw a jump in funding: 85% in 2019 to over 87% at the start of 2021.

This is an intersectional issue, too. As you funnel through the data, VC funding continues to drop for BIPOC women founders.

ProjectDiane’s survey of 650 diverse founders finds that Black and Latinx women combined to receive just 0.64% of total venture capital investment between 2018 and 2019, for a total of $3.1 billion — 0.27% went to Black women and 0.37% went to Latinx women.

A contributing factor to this massive gap in VC funding is what stage the money is coming in. At the early stages of fundraising, 7% of VC funding went to solely women-led startups. The chasm drops off at the late-stage funding rounds, where only 1% went to women-led teams.

But another issue Doreen points out is that women are also largely underrepresented as decision-makers at U.S. VC firms.

According to All Raise, only 12% of decision-makers at U.S. VC firms with funds over $25 million are women, and 68% of VC firms in the country don’t have any women partners that would have the power to write the checks.

While the data from this year shows a drop in funding at the later stage rounds, it doesn’t suggest that women-led startup teams lost traction fundraising in the preseed and early-stage rounds. Doreen notes just how significant early-stage rounds can be for the life of a successful startup.

“It's really profound because of the waterfall effect that this creates,” Doreen says. “When a female founder gets at least some angel investment, and maybe doesn't need to bootstrap for quite as long, that allows her to create more business progress, which then makes it that much easier to have the VC conversation and be VC ready.”

Putting this theory into practice is angel investor Joanne Wilson, whose portfolio currently boasts over 130 women-led startups, such as the femtech app Clue and logistics company Shippo, which just closed a $45 million Series D round.

As a co-founder of the Women’s Entrepreneur Festival, which ran for six years at NYU, and a host of “Positively Gotham Gal,” a podcast that interviews successful women entrepreneurs, Wilson has been a longtime advocate of supporting women in business and has made the guiding thesis of her investment portfolio to provide funding and mentorship for early-stage female founders.

“I think one of the great things about women is they cross their T's and dot their I’s,” Wilson says. “They are very tenacious. They're great managers and leaders, and they'll take their time to build a business. But what I have witnessed is very strong women that have done a great job as founders.”

Her beliefs are not unfounded. According to CNBC, teams comprised entirely of female founders sell or go public faster, in less than seven years on average, compared to the nearly eight years on average it takes all-male-founded teams to exit.

On a broader scale, more and more venture firms are also starting to pump money into women-led startups in the earliest stages in hopes of a promising return on investment.

Just this past week, the New York-based, early-stage investment firm BBG Ventures raised $50 million in the largest-ever pre-seed and seed-stage fund solely for women.

Another thing to be hopeful about: The number of women with power in venture capital is growing. According to an Axios report earlier this month, the number of women decision-makers at U.S. VC firms more than doubled in the past five years, possibly even more if including smaller funds.

“I am excited that more women are becoming VCs and more women are starting their own firms,” Joanne says. “I think this has been a horrific year for everyone, and I'm going to hope that when the floodgates open, we will see a shift in a very positive light.”

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