The State of Women in Venture (Part 1)

Women founders and VCs made strides over the past decade. Could COVID-19 reverse the progress?

In an open letter to the VC community, All Raise CEO Pam Kostka posed an intriguing question, pointing to the “embarrassingly paltry” amount of funding that went to female-founded companies in the past two years despite record-high investment.

“If this represents the bets venture is placing on female founders during a boom time,” she wrote, “what’s going to happen during a recession?”

A decade of progress?

The venture community has done a lot of back-patting in recent years, pointing to gains in fundraising for women, the number of women-led startups, and the number of female decision makers at VC firms over the past decade. Yet, depending on whose numbers you believe, female-founded companies still receive as little as 12% of all VC funding even during the best of times.

A 2019 survey of VCs by Morgan Stanley concluded that even well-intentioned VCs fail to take action that meets their rhetoric. " An overwhelming majority (83%) say that they can prioritize investments in companies led by women and multicultural entrepreneurs and maximize returns," according to the report. "However, these sentiments haven’t translated into actions." About a third of white male VC surveyed said they prioritized investing in women-led startups, and a scant 13% prioritize investing in minority-led startups.

A recent Inc. headline sums it up: “Women are raising more money than ever. But that doesn’t actually mean they’re getting ahead.”

Over the past decade, while VC funding overall grew 6.5-fold, women-only founding teams actually captured a slightly smaller portion of the overall pie. Teams with both men and women improved only marginally, by less than 3% over the same time period.

As these numbers indicate, our venture community has a lot of work to do in establishing a level playing field for women (and even more so for women of color).

Crunchbase data: 2010 to 2019

Men only founding teams (percent of total) Mixed founding teams (percent of total) Women only founding teams (percent of total)
2010 VC fundraising $31B (88.5%) $3B (8.6%) $1B (2.9%)
2019 VC fundraising $195B (85.9%) $26B (+11.5%) $6B (2.6%)

COVID-19’s impact on funding

We’re starting to see how a global economic crisis might impact this already-bleak picture.

According to the latest data from PitchBook, female-founded startups (companies with at least one female founder) lost ground in the first half of this year. The picture is even more bleak for female-only founding teams.

PitchBook data: Q1 and Q2 2020

Men only founding teams (percent of total) Mixed founding teams (percent of total) Women only founding teams (percent of total)
Total deals 77.1% (+.6%) 16.5% (-.3%) 6.4% (-.3%)
Total investment 85.3% (+.3%) 12.6% (+.3%) 2.1% (-.6%)

Our own internal data indicates a similar type of drop-off could be happening among investors. After increasing to a record high of more than 17% in 2019, we estimate that women brought just over 13% of the solo deals on AngelList in the first half of 2020 (though there’s still time to make up ground).

Chart 1

The data lends credence to what Kostka and others fear: the impacts of Covid-19 could threaten what little gains we have made in creating a more even playing field for women and other marginalized groups.

Layoffs ahead

The National Venture Capital Association released a report in April, “Startup Ecosystem Faces Capital Crunch over Coming Months,” that predicted the estimated 30,000 layoffs at startups so far during the pandemic is “likely just the tip of the iceberg.” One VC quoted in the report predicted that 80% of startups will cut between 10% to 50% of their workforces over the next year.

John Cook, co-founder of Geekwire, put it this way in his analysis: “With less capital available, venture capitalists may reverse any progress that has been made to diversify portfolios by backing women founders, entrepreneurs of color or those living in more distant geographies.”

That’s a concern that’s shared by two-thirds of the women founders surveyed by 500 Startups who said they worried they would be disproportionately impacted by the fallout of COVID-19.

“COVID-19 does not discriminate,” professor Sara Davies wrote in a recent United Nations report, “but it’s spreading through societies that do.”

Silicon Valley’s track record

It’s no secret that Silicon Valley — where two-thirds of VCs are white men and 4% are women of color — is one one those societies. The tech industry remains a beacon of technological advancement and wealth generation — but only for those who can access it.

Steve Young, a startup advisor and early employee at Facebook, explained the homogeneity in venture and the founders they fund as being “the natural human failing of cliquishness and short-sightedness.”

That short-sightedness is evident in the fundraising numbers, in the lack of diversity of decision-makers at VC firms, in the homogeneity of leadership (C-suite and boards) of tech companies, and a myriad of other places you might look (for example, Gamergate).

Why is this important?

When women remain underrepresented in venture, it’s a detriment to the larger startup ecosystem. Here are four areas our community should remain focused on as the global crisis plays out:

1. Building products for women: Startups are building the future, and the future is 50% female. Investors work with founders from the beginning — helping build their teams, sitting on their boards, offering advice — so they’re shaping the way products are built for all users and use cases from the beginning. When companies do this without input from women, they risk alienating half of their market (for example, harassment on Reddit). Much of the time, they’ll realize it when it’s too late.

2. Increasing the number of female-founded companies: Venture is an important and influential player in the startup/tech ecosystem. The more women are involved in making the decisions about what companies are invested in, the more female founders will receive investments.

3. Closing the wealth gap: Venture can be a way to build tremendous wealth. When we exclude women, it’s not just excluding them from a particular profession or type of investing; it’s excluding them from building wealth.

4. It’s good business: In 2018 Harvard Business Review observed that within venture firms, diversity significantly improved financial performance such as profitable investments at an individual-portfolio company level and overall fund returns.

Coming next.

In the next part of this series, we will explore options for the venture community to double-down on inclusivity at a time when it’s more imperative than ever.

Continue reading
All articles

What We’re Seeing in Early-Stage VC So Far in 2020


The State of Women in Venture (Part 3)