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Lack Of Investment In Women-Founded Startups Is A Missed Opportunity

May 31, 2022
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Everyone loves the idea of a startup: One person or a small team of people starting a business by bootstrapping it and leveraging funding to become a million-dollar company or even a unicorn. That love for startups is deeply entrenched in the popular psyche. However, when most people think about startups, they don’t often imagine female-founded or led companies. The Global Entrepreneurship Monitors reports that the global male-to-female entrepreneur ratio is 10-to-7. That’s a small gap, but it grows massive when you look at it in terms of funding. In 2018, male founders raised $109 billion in VC funding in the U.S., while female founders only managed to raise $2.86 billion. That’s a trillion-dollar missed opportunity by investors, and we’re not exaggerating.

Why Women Struggle To Raise Funds For Startups

There’s a common misconception that there isn’t a large number of female entrepreneurs, but the numbers show otherwise. The male-to-female entrepreneur ratio is much smaller than you might imagine with seven female founders for every ten male ones. In 2020, female entrepreneurs owned approximately 9.9 million small businesses in the U.S. Male founders, on the other hand, own about 12.5 million companies. It’s easy to say the gap exists because women are less interested in entrepreneurship, but that’s not the case. The fact is, it’s simply harder for women to raise enough funding to keep their businesses afloat. You’re probably familiar with the statement that “90% of all startups fail.” The real number may vary based on industry and other factors, but overall, many failures are due to a lack of funding. This type of failure is a risk to women-led startups, especially considering that in 2020, it was estimated that only 2.3% of all VC funding went to these The gap in the number of startups isn’t large enough to explain that disparity. One explanation is that only about 12% of decision-makers in VC firms are female. When there’s more female representation, the chances of getting funding for women-led businesses increase. It’s important to understand that startup funding isn’t a zero-sum game. If female founders thrive, it doesn’t take away from funding for male-led startups. Every successful startup represents a net positive for the economy. Since 2017, startups that are less than one year old have added, on average, 3 million jobs to the U.S. economy. That’s well over a dozen million jobs and more than a trillion dollars in value.

What Is The Experience Of Female Startup Founders?

I’ve had the opportunity to get to know several female founders, and their experiences show the unique difficulties that women face when trying to start companies and raise funding. Recently, I had the pleasure of interviewing several female founders, including Shannon Almeida and Priyanka Vazirani. Shannon and Priyanka are the co-founders of Volv, which is “a TikTok for writers” to help you find the best content without having to jump from page to page. Although the concept was good enough to get Snapchat in for a pre-seed round, they’ve faced difficulties getting interest from VCs. Volv is doing fantastic numbers for a new app, but even so, VCs have been reluctant to invest in the company. In their experience, VCs make female founders feel more like they’re begging for money instead of outlining products and a business model. Before founding Volv, Shannon and Priyanka worked at a social media startup focused on raising awareness and lowering disinformation around victims of urgent social crises. To get on the radar of VCs, they took a unique route. They started cold-emailing celebrities until some big names such as Kerry Washington and Ilana Glazer put them on the radar by posting on Instagram about the startup. To get funding, they had to secure the thumbs-up from already successful women.

How To Reverse The Trend

There’s no one solution to fixing the problem of the lack of investment in women-founded startups. As a female entrepreneur, the best thing that you can do to increase your chances of raising funding is to network with other female founders. One great example of a network that empowers female founders is Fylí. It’s a female mastermind community that aims to connect female founders with mentors and help them find funding opportunities. Jaclynn Brennan, the founder, was on stage with me at a recent SXSW event sharing her story of raising funding. As a female entrepreneur, you might not want to limit yourself to women-only startup communities. There’s a lot to learn from other groups, but the sheer value of having access to other founders that understand the unique challenges of securing funding as a woman is incredible. If you’re an investor, you can help reverse the trend of lack of funding for women-led startups by researching companies that offer valuable ROI opportunities. No one is arguing for funding female-led startups just on the basis of gender. The real challenge lies in providing more exposure for these companies to offset how hard it is to get private funding. It’s not hard at all to find great examples of women-led startups that are doing amazing work in their fields. 4D Healthware has raised over $5 million in funding to make personalized medicine possible by integrating data. Biobot Analytics, founded by Mariana Matus and Newsha Ghaeli, has raised over $28 million in five years to transform wastewater infrastructure and provide health analytics based on sewage analysis. Those are just two examples. There’s also Affectiva, co-founded by Rana el Kaliouby, which has raised over $60 million in six years by developing technology that helps businesses better understand customer emotion by using machine learning to analyze facial expressions. It’s important to reverse the misconception that female-led startups focus only on products and services that target women. There are plenty of female founders doing amazing work. Passing on investment opportunities simply due to gender is a net loss for everyone, both economically and socially.

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