VC Funding's Gender Gap Is Hurting the Marketplace
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It's no secret women-led companies have a significantly harder time securing venture-capital funding than their male counterparts. Katherine Hays, cofounder and CEO of ad-tech startup Vivoom, said it perfectly: “Sometimes I believe if I were a 21-year-old male in a hoodie, Vivoom would have been even more appealing to VCs.”
Numerous recent studies confirm these difficulties:
- “About 38 percent of new businesses in this country are started by women but only between 2 percent and 6 percent of those founders receive VC funding,” says Wharton Business School professor Ethan Mollick.
- “Companies with all-male management teams are over four times more likely to receive VC funding than businesses with even one woman on the team,” according to a 2014 study by Babson College.
While the gender disparity in venture capital is indisputable, the contributing factors and proposed solutions remain up for debate.
The VC decision-makers.
There is a demonstrated lack of diversity among venture capitalists. Early-stage investing long has been dominated by men, with very few women involved in the traditional model of networking, evaluating prospective investments and guiding portfolio companies.
Men constitute the vast majority of today's VCs. That's especially true for funds valued upward of $250 million: Only about 6 percent of those VC decision-makers are women. While these reports fail to reflect the presence of women in smaller VC firms, they still are indicative of the overall diversity problem within early-stage investing.
Wharton’s Ethan Mollick spells out why a predominantly male funding landscape can be (and has been) self-perpetuating: "If you share a gender, ethnicity or social background with someone else, you’re part of the same personal and professional network and are therefore more likely to [be inclined to want to work together]."
The VC capital process is highly dependent on networking, and there's little objective data to guide early-stage investment. This means decisions easily are swayed by personal preference, implicit bias and status quo.
Still, the number of female funders is on the rise, and the trend should bode well for female entrepreneurs. The Kauffman Foundation has found that “venture funds with women on their teams invest in women founders 70 percent of the time.”
The burden of proof.
Perceptions of a company’s founder and management team are crucial in evaluating a startup. In a fiercely competitive, high-risk landscape, anything short of uncompromising commitment leaves room for doubt. Female-led startups face an uphill battle to inspire confidence and win investors.
Successful startups demand entrepreneurs who are all in, and women are subject to second-guessing. More often than not, they're assumed to be less willing to sacrifice family and home life for their work. They're also assumed to be less inclined toward the hyperconfidence and self-promotion often associated with success.
Faced with these presumptive attitudes, women do well to know their strengths. Female entrepreneurs have proved themselves exceptionally effective at noticing market opportunities, adapting to changes, innovating solutions, creating value and keeping costs low. Reports such as the 2015 Kauffman Index: Startup Activity suggest female entrepreneurs are the most adept at perceiving and capitalizing on market opportunities.
Following the money.
It's widely recognized that if female entrepreneurs could leverage the same opportunities as their male counterparts, the job market and economy as a whole would see enormous benefits. Many efforts are underway to close the gender gap.
- Online investment marketplace. One proven solution for women-led businesses is crowdfunding through the online marketplace. Platforms such as SeedInvest, CircleUp and MicroVentures all have reported a significantly higher percentage of investment in female founders. These platforms allow entrepreneurs to bypass traditional gatekeepers, access more diverse decision-makers and minimize the role bias plays.
- Accelerator + networking programs. A growing number of accelerator programs and organizations exist to connect women with the skills, training, mentoring, networks and capital needed to effectively launch and grow their businesses. Female entrepreneurs in high-growth sectors have a wide range of accelerators from which to choose. Among them are Women's Startup Lab, Springboard Enterprises, Dreamit Athena and EY Entrepreneurial Winning. In addition, numerous networking organizations exist to connect women to investors. These include Astia, Vinetta Project, DWEN and Pipeline Angels.
- VC Firms backing women. PitchBook recently published a list of American VC firms that target women-led companies. Some, like Golden Seeds, cover all sectors. Others are more specific. For example, Women's Venture Capital Fund concentrates on digital media, sustainable products and services. The Female Founders Fund centers on the related industries of e-commerce, online marketplaces and web-enabled products and services. BBG Ventures primarily is interested in consumer internet and mobile startups, while BELLE Capital USA invests in digital health, IT and Clean Tech.
These new platforms and organizations -- accelerators, networking groups and VC firms alike -- all are crucial to help female entrepreneurs access the human and financial resources they need to launch and grow their businesses. And as early-stage funding evolves to include a greater variety of decision-makers, it should become easier for women-led businesses to connect with investors.