Data obscures positive trends in VC dollars reaching women-founded startups
In 2021, $330 billion in venture capital was deployed, and only 2% of that number went to companies founded only by women and 15.6% to teams with both women and men on their founding teams, according to PitchBook data.
In my view, the correct statistic is about 18%, not 2% — as we should take into account deals that had mixed-gender founding teams. Eighteen percent of $330 billion translates to $59 billion, or 25% of all venture transactions (e.g., deal count), and these three figures are the numbers that should be reported.
It is disrespectful to exclude founding teams with both women and men from women-founded company fundraising statistics, period. Doing so ascribes all the fundraising success and the leadership work underpinning it to the founders who are men, effectively propagating gender bias.
Beyond the dismissal of companies with mixed-gender founding teams that had tremendous successes in 2021 — consider Alloy (which reached unicorn status), Cityblock Health (which raised $600 million) and Nubank (which closed the year with a record-breaking IPO) — the correct statistic reflects a dramatic change in gender disparity.
At 2%, only one in every 50 venture dollars is allocated to women-founded companies, while 18% puts this in the ballpark of one in five venture dollars. Both reflect that there is more to do on the issue, but they exemplify different starting points and, by extension, the ground that needs to be covered.
We still have work to do on the matter, but we’re not pushing a boulder up a hill — we’re halfway there.
If our ultimate objective is to understand the current state of opportunity and its expansion over time, we need to, in the words of John Doerr, measure what matters: representation in early-stage financing.
Specifically, we need to be tracking as metrics: (i) the number of first institutional round venture deals, (ii) the demographics of the founders of those companies and (iii) the composition of the funders on an annual cohort basis. The rest is noise.
I ran the most recent numbers, and PitchBook-NVCA data shows that in 2021, women founders (defined here to include mixed-gender teams) pulled in 24% of first-financing venture deals that disclosed founder identities. (Of 4,375 deals, 3,659 disclosed founder identities, and 895 were either women-led or led by individuals of both genders.)
From this perspective, one in four first-financing deals is into a company with a woman founder — a dramatically different picture than the outrage-inducing 2% narrative circulating in the industry. Again, we still have work to do on the matter, but we’re not pushing a boulder up a hill — we’re halfway there.
To put the number in context, women-founded companies have accounted for around 24% of annual first-financing deals that we know had mixed-gender teams since 2017. From 2012-2016, this number hovered around 20% and, in the mid- to late 2010s, the number was in the mid-teens. This implies that first-financing transactions to companies with women founders have grown at a faster rate than overall first-financing dealmaking.
The data supports this, as the numbers for women founders and the overall first-financing growth are 1.6x compared to 1.4x from 2016 to 2021, 1.4x to 1.1x from 2011 to 2016 and 3.8x to 2.2x from 2006 to 2011, respectively.¹ On a five-year compounding annual growth rate (CAGR) basis, the numbers are 6.2% and 2.5% for women founders and the overall first-financing market, respectively, for 2015-2020.²
Slowing growth in first-financing venture deal count over the last 15 years is perhaps most surprising given the considerable rise in emerging fund managers, particularly those with women-founder investment mandates, venture investors who are women and commitments from storied firms to increase support for underrepresented founders in recent years.
This calls into question the efficacy of reporting and related advocacy initiatives.
We need better funder-side reporting
How did all the top funds rank in 2021 across different founder backgrounds? Unclear. How do emerging fund managers stack up to storied firms? Unclear.
If I am a newly wealthy individual interested in becoming a limited partner (LP) in funds that have the best first-money-in track record on women founders, Black founders, immigrant founders or other areas of affinity … how does everyone rank on deal count basis? Unclear.
Is it actually true that women investors are leading more first-financing deals in women-founded companies? Unclear. What percent of emerging fund managers are raising for and investing in pre-seed or seed — which is the opportunity bottleneck — versus Series A and B? Unclear.
Without funder-side reporting that matches the rigor of founder-side analysis, coverage falls short of true accountability. Distinguish those leading the charge from those lagging behind as well as first-check writers — those truly sponsoring opportunity — from others supporting women by other definitions. It’s a worthwhile endeavor, as benchmarking funds and investors by deal count allows all participants in the ecosystem to transact more efficiently based upon their priorities.
Moreover, capital allocations to women founders ought to be segmented into racial, socioeconomic and academic subgroups, because women have biases, too. Homophily, which underpins the thesis that more women investors will yield more women founders, does not cut on gender lines alone — it also cuts across pedigree, sociodemographic, behavioral and intrapersonal characteristics.
The homogeneous roster of women founders, the challenges and personal development arcs discussed, and proposed solutions to issues of disparities to date, demonstrates this to be true. Further, trickle-down representation simply feels inadequate to many individuals.
While there are limitations to how granular we can get with firm-reported data, the point remains: You cannot hold accountable individuals whose records are unclear, and accountability brings out the best in people.
The problem with aggregate deal value numbers
Aggregate numbers have many distorting factors baked in that make them meaningless metrics.
I’ll illustrate using edtech, which had another blockbuster year. However, the fact that Guild Education (women-founded) raised a $150 million Series E, Handshake (men-founded) raised an $80 million Series E and Outschool (men-founded) raised $185 million over a Series C and Series D in 2021 tells us nothing about the state of access to capital for underrepresented founders or gender disparities in capital allocations today.
That’s because while these three companies pulled in $415 million in 2021, their fundraising successes today are the result of being given an opportunity six or seven years ago and consistently delivering results.
In short, annual deal value is a lagging indicator, skewed by late-stage financing into companies formed five to 10 years ago, and it suffers from survivorship bias, as funding after the first financing round is contingent on performance.
Further, deal value is not a comparable metric for myriad reasons. The concentration of founders across industries, the capital intensity of said industries, the stage distribution of companies and management business planning (e.g., how much runway to raise for, whether to optimize for growth or profitability, etc.) all have a hand in aggregate fundraising statistics.
All this makes the number less meaningful than it appears to be at first glance, and ineffective for comparison on a gender level.
As an illustrative example, Cruise, a men-founded autonomous vehicles (AV) company, raised $3 billion in 2021, accounting for nearly 1% of the year’s venture capital dollars. This transaction alone was more than the $2.6 billion women founders took in over 135 deals in the digital health sector, an industry that had a historic year.
There’s work to be done, but pretending aggregate deal value is the metric that matters is malpractice. If true accountability is the goal, the ecosystem would be better served by a more rigorous progress scorecard — one that zeroes in on first-financing deals on a deal count basis, disaggregates women founders into subgroups, and benchmarks fund participation.