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Something Ventured: Despite Blockbuster Venture Investment, Female Founders’ Share Of VC Funding Falls

Illustration of female founder face on $100 bill.

Editor’s note: This article is part of Something Ventured, an ongoing series by Crunchbase News examining diversity and access to capital in the venture-backed startup ecosystem. Access the full project here.

Reading headlines around U.S. startup funding, a common theme for 2021 is that practically everything is up. Venture investment is at record highs. Sectors like crypto, security and telehealth are seeing multifold gains. Giant rounds and big exits keep piling up.

However, one thing the data shows is not up: The share of venture funding going to female-founded startups.

For the first eight months of 2021, companies with solely female founders raised just 2.2 percent of  all venture funding, per Crunchbase data. That’s a lower share than any of the previous five calendar years.

Teams with male and female founders, meanwhile, pulled in 11.7 percent of total funding as of the end of August. That’s roughly a median level compared to the past five calendar years, in which mixed-gender teams brought in 12 percent of funding on average.

With average round sizes getting bigger, the number of funding rounds for female-only and mixed-gender founding teams also fell, as shown in the chart below. (Some of this decline, however, may be due to reporting delays, as rounds at the seed-stage in particular often enter the Crunchbase database weeks or months after they close.)

A paradoxical situation

What to make of the numbers? For Pam Kostka, CEO of All Raise, an organization that supports female founders and funders, the data makes a strong case that gender bias persists among startup investors.

“There are more and more (female) founders with venture-scale businesses that are knocking on doors, but the money isn’t coming,” Kostka told Crunchbase News.

While investors probably aren’t intentionally lowballing or withholding term sheets for women-founded companies, “unconscious bias is insidious,” and it shows up in the funding totals, she said.

That’s a view shared by Lolita Taub, a San Diego-based general partner with early-stage investment fund The Community Fund, which focuses on investing in what it calls “community-driven” startups.

“We all have biases,” Taub said in an interview. “This is one more reason we need to have women and other underestimated minorities be check writers. It’s all about who’s writing checks and seeing these opportunities.”

Another issue is that female founders who do raise capital tend to pull in smaller sums than their male counterparts, notes Cynthia Franklin, director of entrepreneurship for the Leonard N. Stern School’s W.R. Berkley Innovation Labs at NYU.

“The bets are being made, but they’re smaller,” Franklin said.

This disparity becomes particularly evident as female-funded companies scale up to later stages.

Paradoxically, while the percentage of funding to women-founded companies is down, the actual amount of money going to these startups is on the rise. For the first half of 2021, startups with solely female founders raised $2.6 billion, Crunchbase numbers show.

If current trends continue, this year is on track to be the highest total in five years, and well ahead of the $3.2 billion raised in 2020.

Investment in startups with at least one male and female founder, meanwhile, was far higher, hitting $15.9 billion for the first half of 2021. That’s a record number, already higher than the full-year totals for the past five calendar years.

That female-founded companies could be both raising more money and attracting a smaller share of total investment is a function of the red-hot broader funding environment. For the first half of 2021, venture investment in U.S. startups totaled a record $155 million, more than double year-ago levels.

So although woman-founded companies aren’t getting a bigger slice of the pie, there is a much bigger pie.

Female founders making waves

Female founders are also at the helm of some of the most talked-about startups of the year, as well as some of the bigger exits.

On the unicorn front, at least 21 U.S. companies with either only women or both men and women on their founding teams had crossed the $1 billion valuation mark for the first time as of August.

The list includes BlockFi, a provider of loans backed by crypto assets, as well as Maven Clinic, a  digital health offering for women’s and family health, and Modern Health, focused on online mental health therapy and coaching.

So far, this has also been a record year for women-led companies going public. Whitney Wolfe Herd became the youngest woman to take a company public when dating app Bumble had its February IPO. Also in 2021, direct-to-consumer health care apparel maker FIGS became the first company founded by two women to go public.

Companies founded or co-founded by women also scored some of the year’s largest funding rounds. This includes DriveWealth, a digital trading technology provider that raised a $450 million Series D in August. The same month, San Francisco-based Talkdesk, a cloud-based contact center technology provider, raised $230 million for its own Series D.

Early-stage outperforms

While large late-stage deals may attract the most attention, early-stage actually outperforms.

For 2021, a whopping 61 percent of total funding to startups with only female founders was at the seed and early stages. This is a sharp contrast to the overall venture funding landscape, in which over two-thirds of investment for the first half of this year occurred after early-stage, per Crunchbase data.

“It’s puzzling that we are not seeing a higher representation in later stages,” observed Jaleh Rezaei, CEO and co-founder of Mutiny, a provider of personalization technology for converting website visitors to customers.

“One possibility is that there are now a lot more female founders, and the recent, more female-filled cohorts are still maturing and thus we don’t yet see as many in Series C+ yet,” Rezaei, whose company announced an $18.5 million Series A round last week, noted in an email interview.

Overall, the stronger showing by female founders at earlier stages can be interpreted as both a potential positive and negative indicator.

On the positive side, today’s hot seed- and early-stage companies grow up to be the unicorns and industry leaders of tomorrow. So a seed-stage pipeline plumbed with a larger share of female founders should theoretically lead to more gender-balanced late-stage deal flow.

The seed stage is also where women and other underrepresented startup founders typically need the most help, investors say.

“It’s in the earliest stages that founders really need the help, especially when you look at underestimated founders, who often don’t have that friends and family financial support,” Taub said. “Having funding going to an early-stage is a great thing.”

But there’s also the negative consideration: Female founders overall are getting proportionately less later-stage investment capital and lower valuations than their male counterparts. This indicates that even women entrepreneurs who secure seed and early funding still face barriers as their companies scale.

Taub said she wants to see a more diverse group of investors  at the later stages writing those large checks for growing female-led companies.

“If you have homogenous investors investing upstream, what’s going to happen to our portfolio companies?” she said.

Pandemic impact

The pandemic also impacted female founders. Crunchbase data showed funding to venture-backed companies founded solely by female entrepreneurs dropped 22 percent year over year in 2020, with the decline most pronounced at later stages.

The spread of COVID-19 also accelerated consumer adoption in a number of areas, including telehealth and remote work, where female founders have been actively scaling existing companies or launching new ones. While there may have been entrepreneurs who stepped back due to pandemic-specific hardships, in Kotska’s experience they were far outnumbered by founders launching.

Franklin said that although the 2020 funding numbers were disappointing for female founders, she’s optimistic the cohort will start to see more gains.

“Right now I’m in sort of a wait-and-see-if-things-course-correct” mode, she said. “I think it will. What’s been encouraging at a university is seeing the amazing talent that’s coming up. These women, they’re not going to be turned away. They want their place at the table.”

— Gené Teare provided data and analysis for this story; Marlize van Romburgh contributed additional reporting.

Illustration: Dom Guzman

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