The pandemic has disproportionately affected women, in terms of job security, greater layoffs and increased care work. But another big shift that has dealt a blow to women in business is the substantial plummeting in the venture capital funding for women-led startups.
In the US, the overall venture capital investments in 2020 are on par with previous years but those funds haven’t necessarily made their way to female business owners.
Investments in women-led companies this year are on pace to be the worst since 2017.VC deals with startups founded exclusively by women dropped to just 4.3% in the first quarter of 2020 vs. 7.1% in Q1 2019.
According to Leslie Feinzaig, founder and CEO of the Female Founders Alliance, the instability of the pandemic has made the investors wary of new risks and stick to their own networks. This has closed off the circle to women and minorities, especially those with newly emerging companies.
Even when investors have gone out to support new businesses, they have stuck with pattern-matching habits – not giving a break to companies with diverse leadership roles.
Economic uncertainty has also made women become risk-averse and let go of their entrepreneurial plans.
While the lack of interest and initiatives has dwindled, it is also important to notice the shocking lack of diversity on the other side of the table.
As of August 2019, just 12% of venture firms and angel groups had women in investment decision-making roles. This number becomes worse. According to the Women in VC dataset, only 5.6% are women-led funds and just 2.4% of all VC partners are founding female partners.
And women of color represent 0.8% which is less than 1% of all VC partners in the US.
The story so far looks grim. But massive social shifts have led to growing market awareness of gender inequity, an increase in mentorship networks and a rise in female general partners in VC firms.
Another reason that is causing a shift towards women-inclusive decision-making and investments is that there is a strong correlation between hiring female investors and generating strong returns.
69% of venture firms that scored a top-quartile fund between 2009 and 2018 had women in decision-making roles. People have attributed this performance gap to women being more capital-efficient because of managing businesses with meagre funding. They are usually prepared for worst-case scenarios and thus fare better in light of economic uncertainties.
“Underrepresented founders are used to thinking about risk in an intelligent way,” says Elizabeth Galbut, the founder of SoGal Ventures.
The astounding numbers and the social factors have driven urgency into the conversation around recruiting women partners. More and more women are inspired to take control of their own success in the venture community.
An increase in public awareness about women in VC has paralleled a spike in women-led funds. Over the last five years, the number of women-led funds has nearly quadrupled, and there is evidence this rise is accelerating.
6 Women-Led Funds That Are Investing in Women-Led Businesses
- Female Founders Alliance: Founded by Leslie Feinzaig in 2017, Female Founders Alliance aims to accelerate the success of venture-scale women and non-binary founded companies. Today it has an expansive network of thousands of companies from 30+ states island continues to guide support to women and non-binary founders across the globe.
- Fearless Fund: Arian Simone, serial entrepreneur, philanthropist, angel investor, author and marketing specialist teamed up with actress Keisha Knight Pulliam to form Fearless Fund. Fearless Fund exclusively invests in women-of-color–led businesses seeking pre-seed, seed level or series A financing.
- All Raise: Aileen Lee, a renowned venture capital investor, along with 33 other senior female VCs, founded All Raise, a nonprofit that amplifies female voices, accelerate their success, and create a tech culture where women are leading, shaping, and funding the future.
- SoGal Ventures: Founded by Elizabeth Galbut, NYC-based SoGal Ventures is the first female-led millennial VC fund, which invests in diverse entrepreneurs at seed and pre-A stage in the U.S. and Asia. The SoGal community features more than 40 chapters worldwide, where local entrepreneurs and investors connect to inspire and learn from each other.
- WXR Fund, Jump Canon: Martina Welkhof is a founding partner at the WXR Fund, which is a venture fund focused on women-led AR/VR companies. Welkhof is also a venture partner at Jump Canon, a San Francisco fund focused on underrepresented founders in emerging tech.
- Female Founders Fund: Founded by Anu Duggal, Female Founders Fund is an early-stage fund investing in technology companies started by women. It has become one of the leading sources of institutional capital for female founders raising seed capital with over $3B in enterprise value.
This is not just a mere cry for social equity. This is an opportunity that when actualized will result in greater profits benefiting all the stakeholders. As Sara Kunst, Managing Director of Cleo Capital told Marie Claire, “Thereʼs a lot of data that shows that when women invest, you make more money.”
More diverse and more women-led funds mean that the likelihood of products and services targeting underserved markets receiving funding increases.
It is time and again proven in study after study that diverse teams outperform all-white teams, across all boards. We are at a serious inflection point to pave a path towards a more accepting, accessible venture community for women, and as a byproduct, women founders. It’s time to act on it.
