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Earlier this year, venture capitalist Eileen Lee, who coined the term “unicorn” to refer to privately owned startups valued at $1 billion or more, put out a report reflecting on what has changed in the 10 years since the moniker was created.
To be sure, a lot has changed – the number of unicorns in the US has risen from 39 to 532 in the past decade, while one notable startup, Meta, has reached a market value of $1.3 trillion. But one thing has remained the same, Lee says: the lack of female founders.
There has been some slow improvement, but only at low levels – only 14 percent of startups have a female co-founder, compared to 5 percent a decade ago. Only 5 percent have a founding CEO, compared to zero during the same period. As Lee, herself the founder of Paolo Alto-based venture capital firm Cowboy Ventures, points out, “There are more female founders named Michael, David and Andrew than female CEOs at unicorns.”
The imbalance is reflected in investment flows. The share of funding for companies with only female founders fell from 2.5 percent of total venture funding in 2013 to 2 percent last year, according to data provider PitchBook.
The picture was better for those with at least one participating institution. Its share of venture capital financing deals by value rose from 16 percent in 2013 to an all-time high last year of 27.8 percent, PitchBook says. But that number was skewed in part by the massive $10 billion fundraising for OpenAI, which was co-founded by two women. Excluding the company led by Sam Altman, the stake fell to 22.8 percent.
There is a glaring factor behind the imbalance. Some of the 85 percent of check writers for venture capital investments are men, according to the nonprofit group All Raise and Crunchbase. Heather Gates of Deloitte & Touche points out that among investment partners, women are less likely to represent their venture capital firm on venture firm boards or serve as a member of the firm's investment committee. Lack of female representation can lead to obvious biases. Alison Greenberg, co-founder of Ruth Health, a virtual maternity care provider, says a male investor once told her “pregnancy is OK” and chose not to invest.
Such decisions can represent a missed opportunity. A recent Boston Consulting Group study of 350 startups found that companies founded by women ultimately achieve higher revenues — more than double for every dollar invested — than those founded by men. Female founders also burn cash at a slower pace and exit sooner at a higher rate than male founders, according to PitchBook.
The Boston Consulting Group survey offered some insights into the reasons for the lack of funding for women entrepreneurs. “Founders and their presentations experience more challenges and resistance than men. For example, more women report that during their presentations they were asked to demonstrate their understanding of basic technical knowledge. Too often, investors simply assume that female founders do not have this knowledge,” the Boston group adds. The advisory suggests that if a potential funder makes negative comments about aspects of a woman's presentation, a man is more likely to accept them as legitimate comments rather than object to them.
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Boston Consulting Group says male founders are more likely to make bold predictions and assumptions in their pitches. “One investor told us that men often oversell and oversell.” In contrast, women are generally more conservative in their expectations and may simply demand less than men. “In general, women often come up with ideas they have experience with,” one investor said. “This is less true with men.”
Many male investors have little knowledge of the products and services that women-founded companies market to other women. “This presents an arbitrage opportunity,” said Andrea Turner Moffitt, founder of Future Heights Ventures and co-founder of another venture capital firm, Plum Alley. One example of this is women's health care. “Less than 2 percent of venture capital funding goes to women's health. There's a mismatch,” says Naseem Al-Sayani, co-founder of Emmeline Ventures.
Consumer-oriented companies also tend to offer a better pipeline for their female founders who can more easily leverage the consumer experience, says Alison Baum Gates, general partner at SemperVirens Venture Capital.
One source of hope for women entrepreneurs is increased representation of women in venture capital firms. Deloitte's Gates says 35 percent of entry-level investment positions were female in 2022, up from 25 percent in 2016. As they rise through the ranks, they may be more inclined to back female-led startups in the future.
anna.mutoh@ft.com
