Women Founders Deserve More Venture Capital
I recently had a conversation with a female founder, and it fired me up. She is in the pre-launch stage and has big dreams for where she wants to take her idea. She’s hoping to secure funding when the time comes. She’s brilliant and driven, and her ideas are incredible. So what’s got me bothered? I know her path to funding will be extra gnarly because she’s a woman founder. And that sucks.
WHAT THE VC FUNDING DATA SAYS
The data demonstrate that women-founded companies consistently outperform their male-founded counterparts. Yet women-only founding teams continue to receive just a mere fraction of total venture capital (VC) raised. In 2023, women-only founding teams in the US raised $3.1 billion of the $170.6 billion total VC allocated. That’s less than 2% (1.8%). Sure, 2023 was challenging for all startups seeking investment. $170.6 billion of total VC allocated is a 35% decline from 2022. Even so, less than 2% to women-only founded companies?! That’s deplorable.
Depressing fact: in the past 15 years, women-only founding teams have never received greater than 3% of total VC invested in any given year. And 2023’s data shows a big step backward—women-only founding teams have not received this low a percentage of VC allocated since 2016 (1.6%).
The stats are better for early-stage funding—but not by much. In 2022, women founders received 14% of seed funding or $965 million out of $13.7 billion (a mere fraction). The average round size for women founders in 2022 was $3.3 million versus $3.95 million for male founders. So, to recap, women founders average a smaller round size and receive less of the total funding pie. Got it.
There’s more. The founder I spoke with intends to take on a co-founder in a few months. Guess what I’ll have to advise her to consider, given that she wants to pursue VC? She has a greater chance of securing funding if she takes on a male co-founder. While women-only founders received less than 2% of the VC allocated in 2023, women founders with a male co-founder received 26%. What the actual F? We can ask this question all day long. But year-over-year data tells a consistent story: mixed-gender founding teams fare better in VC allocation than women-only teams.
If you’re like me, you’ve done the math and figured out that male-only founding teams received over 77% of all VC allocated in the US market in 2023. Truth. But let’s take the math one step further shall we? That means, 98% of all VC allocated in the US in 2023 went to founding teams with at least one male founder.
GENDER BIAS IN FUNDING ISN’T GOOD FOR ANYONE
Several factors deeply entrenched within the startup ecosystem contribute to the undeniable gender disparity in VC funding. Let’s talk about one main factor: the lack of diversity among venture capital investors. VC investors are primarily men, and men predominantly occupy the decision-making roles at VC firms. Only 15% of VC investors are women. The homogeneity in VC decision-making perpetuates unconscious biases that significantly undervalue the potential of women-led ventures and contribute to disproportionate funding allocations.
I know a little something about male-dominated industries. During my 15-plus years in corporate litigation, over 90% of my firm’s partners, i.e., the decision-makers, were men. Men decided who got the best opportunities for career advancement, who was promoted, who served on governance committees, and so on. And just like with VC funding, promoting women to leadership roles within my firm was—to put it one way—disproportionate. And what did the overqualified women who were passed over for promotion do? They left. They saw the writing on the wall and started leaving earlier and earlier in their careers.
A similar trend is happening with women founders. Not only did the VC funding allocated to women founders drop in 2023, but the percentage of women launching new companies also declined. In 2023, the percentage of new companies founded by women was only 13%, down from 15% in 2022. 87% of all founders in 2023 were men—the highest percentage in the last six years. We are headed in the wrong direction.
FACTS ABOUT WOMEN-FOUNDED COMPANIES
The case for investing in female-founded companies is compelling. (I was a commercial litigator; I recognize compelling when I see it.) It is a fact that women-led companies have higher success rates over the long term. A study by the Boston Consulting Group found that, over a five-year period, companies with women founders/co-founders generate 10% more in cumulative revenue than male-founded startups. PitchBook and All Raise reported that women-founded tech companies achieved a 35% higher return on investment (ROI) than male-founded companies. And First Round Capital’s study found that companies with a female CEO outperformed male-led companies by 63% over a six-year period. What is more, female founders have proven to be capital efficient (i.e., they burn through capital at a much slower rate than their male counterparts). All these facts…yet investing in women is still viewed as “high risk.”
Women founders also are more likely to prioritize sustainable growth strategies and foster inclusive work cultures that promote employee satisfaction and productivity. Hmmm, maybe that’s why women-founded startups grow at a faster rate? Finally, women are more likely than men to start companies in unserved and underserved markets, like healthcare, consumer products, and education. Women-founded companies identify market gaps and unmet needs better than their male counterparts. Fact. Unmet needs, un/under served markets — rings like potentially lucrative market niches to my ears.
BEST VC MARKETS FOR WOMEN FOUNDERS
New York City is earning a reputation as the most female-founder-friendly city in the US—both in terms of capital raised and successful exits by women founders. In 2023, women founders received the most funding deals in New York City, followed by the San Francisco Bay Area (#2) and Los Angeles (#3).
HOW AUDETTE LAW IS CONTRIBUTING TO A MORE INCLUSIVE AND EQUITABLE STARTUP ECOSYSTEM
Conversations with talented female founders like the one I had last week make me ask myself: how can I help? What’s my role in eliminating gender bias in VC funding (and entrepreneurship generally)? How do I contribute to a more inclusive and equitable startup ecosystem?
Women founders deserve equal access to resources, including legal services. Women founders deserve a legal advisor they trust and feel comfortable with to help them navigate regulatory compliance, mitigate and manage business risks, be strategic about corporate governance and contractual agreements, protect their intellectual property, and negotiate terms with investors. That’s where I come in. This is why Audette Law exists: to make top-quality IP and startup legal services accessible to women founders.
On that note, here are a few key legal strategies women founders can implement to position their companies for investment:
1. Establish a solid legal foundation. It is crucial for founders pursuing seed or VC funding to structure their business entity appropriately, have comprehensive operating agreements or bylaws, and comply with the applicable regulatory requirements for their industry. Women founders who proactively address these legal formalities send a clear message to investors that they are professional and serious about the stability and viability of their business.
2. Protect your intellectual property assets. It is vital for women founders to proactively protect their innovations with trademarks, patents, and copyrights to establish ownership, protect against infringement, and maintain a competitive edge. Investors care about IP and want assurance that you have a clear IP strategy.
3. Prioritize and implement risk mitigation strategies. Demonstrating proactive risk management can go a long way to alleviate investor concerns about potential liabilities that could derail funding opportunities. Women founders who proactively identify and address potential legal risks that could impact their operations or growth are better positioned to secure funding when the time comes.
The above strategies are important for all founders (regardless of whether fundraising is in your future). To speak with Dani about how you can position your company for growth and success, reach out here.