Closing the Gender Funding Gap: The Issues and Women at the Forefront of Funding Equality
Take a minute and think of the famous entrepreneurs you can name. For most people, names like Elon Musk, Mark Zuckerberg, Bill Gates, and Steve Jobs come to mind. The criteria to be on the list of famous entrepreneurs appears to be 1) achieving extraordinary success, 2) starting a company that impacts the daily lives of people around the world, and most importantly, 3) being a man. You might be asking why so few women make it onto the colloquial list of well-known entrepreneurs. The answer: female entrepreneurs aren’t set up for success in the same way that male founders are.
83% of venture capital funding is awarded to all-male teams, with all-female teams getting 2-3% of that money, and mixed-gender teams receiving the remainder. The discrepancy in funding across genders may have something to do with the fact that 90% of venture capitalists in decision-making roles are men. The funding gap is evident from the minute female entrepreneurs walk into their investment pitches: more than a third of female business owners worldwide expressed facing gender biases during funding rounds. Within that statistic, over 54% and 46% of British and American female entrepreneurs stated that they had experienced sexist behaviour during pitches, including questions about their family life and their credibility as business leaders. Additionally, female startup founders often face the battle of pitching female-oriented products to a panel of men who have no knowledge of the market. In these situations, male investors often say they’ll ask their wife what she thinks of the idea. This attitude represents a lack of due diligence on the part of male investors who are considering investing in a female-oriented product, and it often leads to an unwillingness to invest. The female CEO of Eloquii, a plus-size women’s apparel company, put it best: “Sure, ask your wife, but if she’s a thin white woman, we might not be working with the right data set.”
Whatever rationale investors can use to justify their mostly-male decisions falls flat based on the success female founders have achieved. Female founders generate 78 cents in revenue for every dollar raised, whereas male-founded companies generated a paltry 31 cents in revenue, despite raising more capital than their female counterparts. Female-founded companies backed by First Round Capital performed 63% better than First Round’s all-male founding teams. A third study found that women-led teams generate a 35% higher return on investment than all-male teams. Females are less likely to be motivated by financial returns and to make short-term financial decisions that aren’t in the long-term interests of their business. Additionally, female-led companies are more likely to focus on environmental, social, and governance issues, a valuable tendency in today’s socially conscious business environment.
These studies clearly show that investing in female founders can be extremely profitable. If you don’t believe me, look at Glossier, a female-founded cosmetics company valued at $1.2 billion; Bumble, a popular female-focused dating app founded by Whitney Wolfe Herd; and 23AndMe, a $2.5 billion genomics and biotech company founded by Anne Wojcicki.
One of the most concrete examples of why more VCs should invest in female founders is Forerunner Ventures, a VC firm founded by former equity research analyst Kirsten Green. Forerunner’s portfolio reads like a cheat sheet of the best consumer-focused retail brands like Away, Bonobos, Warby Parker, Glossier, Dollar Shave Club, Reformation, Outdoor Voices, and Ritual. Time named Green to its 2017 class of 100 Most Influential People, stating that “Silicon Valley needs more venture capitalists like Kirsten, who not only hires women...but also seeks out women-led businesses to invest in.” As of 2017, approximately 40% of Green’s investment portfolio is composed of women-led companies. Green’s investments in female-focused companies like Reformation and Glossier have not only empowered female founders but have also given female consumers brands who understand and empower them in turn.
While women like Kirsten Green work to close the venture capital funding gap for innovation-driven businesses, women like Gillian Riley and her team push to increase the amount of commercial funding available for female-led small businesses. Riley is the CEO of Tangerine, Canada’s leading digital bank and was named as one of Canada’s Most Powerful Women by Women’s Executive Network in 2019. After witnessing the obstacles that female-led small businesses face to secure funding throughout her career in Commercial Banking, Riley became a champion of the Scotiabank Women’s Initiative. The Women’s Initiative aims to support female founders through loans, education, and mentorship, all of which are tools that are desperately needed to help female-founded small and medium enterprises succeed.
Despite the work of Green, Riley, and all the female founders they’ve funded, the growth rate of funding for female entrepreneurs has plateaued. To close the gender funding gap, investors must take three steps: commit to funding female entrepreneurs, promote female VCs to leadership positions, and offer support and education for female entrepreneurs. On International Women’s Day in the future, I hope one of the achievements we can celebrate is equal funding for female entrepreneurs.
Editor’s Note: All values stated in USD unless stated otherwise.