Press enter to complete your search

Only 3% of Business Investment Goes to Women, and That’s a Problem for Everyone

Following the release of our recent report “A Decade in Review: Funding to the Female Founders” Crunchbase is highlighting female founders who are paving the way for the next generation of glass-ceiling-smashers. The “Female Founder Series” is comprised of stories, Q&As and thought-leadership pieces from female founders who overcame the odds, raised funding and are now leading successful companies.


Women received a record amount of U.S. startup venture capital in 2019, according to recent figures. But while female founders securing 2.8 percent of total startup investment in the United States may be lauded as a historic achievement, it’s not something we should be complacent about. 

A 2020 Crunchbase report shows that even if we combined VC investment in female-founded and mixed co-founded companies in 2019, it still amounts to only 9 percent of all investment. Considering women represent over 40 percent of all entrepreneurs in the country, and plenty of statistics showing that women significantly outperform men in business, a lot more needs to be done. 

Everything we know about business tells us that more investment in women means more than innovation and reach in an industry, it also provides economic growth and social benefit for the nation. After all, who better to cater to the female half of the world’s population than women? And women, by the way, make 80 percent of purchasing decisions in the home in the U.S. Morgan Stanley estimates that investors are missing out on businesses worth $4 trillion in revenue annually by not investing in more female- and minority-led enterprises.

We can’t continue to talk about investment in women as a pipeline issue; the talent is there, as are the organizations connecting them to VCs. Any investor who says they can’t find female entrepreneurs probably isn’t trying hard enough.

Here’s the problem: While we have come a long way in making the startup world more open than ever, its make-up and culture often represent hurdles for women to overcome. And bias and outright discrimination continue to hamper our progress.

Everyone in the business world shares responsibility for leveling the playing field, so here are five steps we must take to get us closer. 

 

1. Rethink our Attitudes

The startup industry still needs to rethink some of its outdated customs and prejudices in order to live up to its reputation in creating a new, fully inclusive status quo. 

A common generalization that dissuades investors when it comes to women in business is that we’re more emotional and that negatively impacts our leadership skills. That kind of rhetoric is misplaced and counterproductive. Emotional intelligence and sensitivity are not traits exclusive to women and they do not inherently cloud judgment. Those traits, in fact, are becoming essential qualities in businesses wanting to create positive environments for their employees. These characteristics should be considered a strength, as business owners assume more social responsibilities and create more purpose-driven companies.

Networking is extremely useful in connecting entrepreneurs to investors. On this front, we have to remember that Silicon Valley was built by men. That comes through in the way we socialize–late nights after events, happy hours, etc. This can create circles in which investors get the false impression that there aren’t enough female founders out there. While this might work for a sizable chunk of entrepreneurs, it leaves a lot of people out; parents, carers and even those who don’t drink for religious reasons. Instead of shrugging it off, we can take easy steps to make our environment less “clicky” by having virtual networking in specific settings and more daytime events.

If we could collectively get over these entrenched practices and views, we’d not only be making better decisions in investment but also improving the startup culture for everyone. 

 

2. Increase the Number of Female Investors

Only 12 percent of venture capitalists are women, and over two-thirds of firms don’t have any female partners. This isn’t exactly encouraging to budding businesswomen as it could impact their performance and, as we’ll discuss later on, it’s likely affecting bias within boardrooms.

More women in positions of power means better decision-making. Female investors are more likely to invest in other women, and research shows that 70 percent of the most successful funds have female partners. Much of the responsibility for boosting diversity in the startup world lies in bringing that diversity into investment firms.

 

3. Have More Female Role Models and Mentors

All entrepreneurs need someone to look up to and get guidance from when it comes to approaching investors. For women, that often means talking to female founders and business leaders who have overcome the particular obstacles they face. In some spaces that can be harder, as there are fewer women who’ve obtained recognition for their work.

Helping female mentors carve out time from their schedules to support founders is vital. According to data from our Female Founder Initiative, the participation of female mentors and directors improved the performance of women’s portfolio companies. Using initiatives like virtual feedback sessions with mentors, which can last as little as one or two hours during lunch breaks, went a long way.

Likewise, the impact of entrepreneurs and investors seeing successful businesswomen give talks at world-class events cannot be underestimated. Woman speakers show the world that there is no pipeline problem when it comes to finding female-founded businesses. With time, this will change what people expect to see in conferences, boardrooms and on the Fortune 500. Yet business events continue to be male-dominated shows.

 

4. Change the Way We Pitch

Investors appear to unfairly favor men over women when it comes to pitches, according to research by The Harvard Business Review. That report clashes with data from BCG research showing that women return twice as much revenue per dollar invested than men. And while men get asked more questions on their positive aspects, I know from experience that women tend to be asked about potential downsides of investing with them, and about how they’re going to achieve “balance,” with work.

HBR proposes scrapping the pitching tradition altogether, replacing it with a data-driven strategy that doesn’t allow for biases to interfere. Funds that have implemented that strategy ended up with 40 percent investment in female CEOs, which is in line with the proportion of women business owners in the U.S. Do investors really need to hold on to pitching if it gets in the way of judging everyone equally?

As communicators, women are often more reserved in their presentation of themselves, compared to men who are more likely to put out big numbers with confidence. Women could definitely benefit from injecting more confidence into their statements and shedding the unnecessary “in my opinion,” and “I think that.” But in my experience, overconfident pitchers also overestimate their capabilities, putting themselves at risk of falling short. Investors need to have the skills to differentiate the measured pitches from the inflated ones.

 

5. Promote the Support Organizations Out There

There are many impressive organizations taking the lead in opening doors to female entrepreneurs and connecting them to investors. VCs and investors should also be making the most of these organizations.

All Raise offers boot camps and mentors to female founders, and lobbies companies to prioritize diversity when it comes to investment. Black Female Founders connects black entrepreneurs to VC and angel investors and provides mentorship. Chloe Capital is a seed-stage VC firm that invests hundreds of thousands of dollars in women’s startups. Our Female Founder Initiative offers scholarships to women applying to the Founder Institute’s accelerator program, as well as female mentors and woman-focused business events worldwide. A global study our organization carried out in 2018 found that women were 8 percent more likely to graduate from our accelerator program.

Founders for Change is a movement that encourages founders to look to diverse firms when seeking investment. Virtual platforms like Hello Alice‘s technology aims to sidestep social hurdles in the business world to connect founders of all backgrounds with mentors and resources. Websites like Elpha allow women in tech to share personal and professional experiences online.

Diversity in the business world is being talked about more honestly and openly than ever, and I’ve seen the change it has effected on decision-makers. The actions we all have to take as founders, investors and leaders in order to distribute investment more fairly are feasible, and together, we’re changing the norm.


Rachel Sheppard is the director of global marketing at worldwide pre-seed accelerator Founder Institute and co-founder of Female Founder Initiative, a program launched in 2016 as a means of offering support, funding and visibility to female founders.  

Crunchbase Resources to Help Your Business and the Community During COVID-19

We’re focused on equipping you with resources to track and navigate these new circumstances. Donate to those in need and access resources to help your business during COVID-19.