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  • Writer's pictureAmna Najeeb

The State of Venture Capital Funding for Female Founders

Updated: Nov 27, 2020

Female entrepreneurs and founders own around 38% of the businesses in the US, which shows that funding for female founders and entrepreneurs is a growing field. The Venture industry has provided a lot of support in the recent years, which includes gains in the number of female founders, women-led startups, and fundraising for women. According to the recent Inc. headline, ‘Women are raising more funds than ever but that doesn’t mean they are getting ahead actually’.

The last few quarters didn’t come up to the expectations of the VC industry, particularly because of the pandemic. Pam Kostka, the All Raise CEO expressed her concern regarding the funding of female-founded companies during the past two years. She stated that if this is the amount of VC funding for the female-founded companies during a boom time, what will happen when there is a recession?

According to the PitchBook Data, the Venture funding for the female-founded companies has hit the lowest total during the three years. Though the total Venture Capital investments in the US in 2020 are as good as they were in previous years, but that funding didn’t prove to be good enough for the female business owners. In short, the investments and funding in the female-founded companies during 2020 are on the way to becoming the lowest total since 2017. In this post we will discuss the state of VC funding for female founders and also throw light on actions that can prove to be helpful for the female founders.

Covid-19’s impact on female VC funding

The founder of the Female Founders Alliance, Leslie Feinzaig, said that during this phase of uncertainty, most of the VCs stayed close to each other in their network and this affected the minorities and women-led companies a lot.

The number of women-led businesses has risen during the past years globally. In spite of the increase in numbers of the female entrepreneurs, women-founded firms are not getting a fair deal. During 2018, only 3% of the VC funding in the US went to the companies led by female CEOs. Have a look at this chart that shows the amount of capital invested and the deal count during the past 5 years:

Source: PitchBook

The VC funding in 2019 hit $950 million with 207 deal counts. However in Q3 2020 the VC funding faced a sharp decline as it was just $434 million with 136 rounds. Though the overall VC funding and deal count was good enough during the quarter, but it was just the female-founded firms that faced the challenges. The recent data from PitchBook shows that many women-led startups lost ground during the first quarter of this year. Women entrepreneurs could bring only 13% of solo deals during the first half of 2020 as compared to the record high level of 17% in 2019.

This data has made most of the female founders worried as they think that the impact of Covid-19 can be harmful for women-led companies in the future. The National Venture Capital Association also stated that were already 30,000 layoffs during the pandemic and there are more to come. One VC stated that around 80% of startups will cut down around 10 to 50% of their workforce in the upcoming years. Since there will be lesser capital available, the VCs will make their moves carefully and might reverse any progress related to backing the women founders.

Where female founders are gaining grounds in Venture Capital

Female founders are continuing to face hurdles in accessing capital for their startups and grow up their businesses. The venture backed startups consist of female partners in minority as most of the capital goes to the male-founded or mixed gender startups. There are many reasons that can explain the funding gap for women founders. The first reason is that Venture Capital industry has always been male-dominated as it was historically built by men. However, in this section we will focus on those areas that are paving the way for female-funded startups.

Funding for female founders is a growing field

In December 2018 an announcement was made by the Constellation Brands regarding the Focus on Females Founders Program. This program is set to make around $100 million investment in female-founded startups by 2028. The focus of this program is to support the advancement of women within the industry and in the local communities.

Large metropolitan areas for women-led startups

The leading metro areas are home to one of the most successful startups in the world. These big cities offer a wide customer base and they attract a lot of venture capitalists. However, the gender gap is also evident in the major cities. Following is a chart that depicts the deal count by HQ state by the female-founded startups:

A comparison of female founded and mixed-gender VC deal count:

Last year the companies founded by mixed-gender teams had an investment in VC capital of 11.4% while those with only female founders saw an investment of only 2.7%. Following is a chart comparing the female founded companies and the mixed gender ones:

Women led VC funds are reducing the gender gap:

Because of the women led companies, the gender gap is being crushed. A BCG study says that VCs should start investing in the women founded companies as they have a great potential. According to the study, the women-led startups generate 78 cents while the male-founded startups generate only 31 cents. The main reason of the funding gap for women is that there is a lack of female-led funds. If you’re a woman leading a startup or a company, you must consider these funds:

· Halogen Ventures

· BBG [Ventures]

· Brilliant Ventures

· Forerunner Ventures

· Sogal

· Female Founders Fund

· The Jump Fund

· Rethink Impact

· Amplifyher Ventures

· Golden Seeds

One thing to keep in mind is that entrepreneurship is not something about getting rich quickly, it takes a lot of time especially when it comes to the startup thing. If you’re a woman founder, do not lose hope as VC funding for females is gradually making its mark in the industry.

Tips for female founders when raising Venture Capital

Female-led startups are getting investor funded at a small scale and the reason is that female founders raise less venture capital. The Venture Capital industry is neglecting female-led startups because the numbers in comparison to male-led startups is too disappointing. The data from TechCrunch tells that there are only 17% startups that are led by females as compared to the 83% that are led by males.

Not only this, PitchBook data tells us that the venture capital raised by female founded firms is declining since 2015 but the overall VC amount is increasing globally. Now the question is, are female-led companies less attractive for the investors? Well, let me tell you that startups led by mixed-genders are performing better than the ones with all male or all female founders. Nevertheless, startups with female founders can also do better if they make decisions wisely and consider certain actions. If you’re a female founder looking to be VC funded, you must consider these tips:

Interact with the social communities:

No matter which city or country you live in, the community is always there to help. Some of the communities that would help in this regard are:

These are the platforms where women founders and investors come together and discuss various issues regarding the women-led startups and VC funding.

Aim for a diverse and well-balanced team:

Make sure that your founding team is diverse and well-balanced because this way it will perform better. If your team has a wider set of skills and experiences, it would benefit the startup and attract more investors. Always remember that solo-preneurship isn’t much acceptable by the Venture capitalists.

Use your capabilities to address potential investors:

There are many ways to address the potential investors apart from classic pitching. The good thing is that women are strong when it comes to people-skills, networking, and building links. As a woman founder, if you’re good at these things, you must get access to startup-investor matching events.

Identify the female-led startup role models:

Have a look around the industry and identify the female-led startup role models to learn from them. If possible, reach out to them and interact with them to get more insight into the venture industry. If you want to take a start, a good idea is to do it with the winners of the last pitching contests.

Bottom Line:

If women continue to be underrepresented in the Venture industry, it wouldn’t be in the favor of the overall startup ecosystem. As the global crisis plays out, the community should focus on various factors to make sure the industry survives. Some of the factors include designing products for women, increasing the number of the female-led companies, and reducing the wealth gap.

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