Across the world, consumers, businesses, and entire industries are suffering from what’s described as the COVID-19 economic crisis. The result? Losses of almost every kind.
Still, we find that these changes didn’t affect all industries equally. In this time of disruption, some industries, such as venture capital, managed to flourish. As a whole, venture capital was among the industries that grew significantly in almost all areas—except for one: diversity.
Numbers indicate that the industry raised $156 billion in capital this year for the third straight year. However, venture capital funds for women and mixed-gender teams decreased; according to data collected by All Raise, female-led and mixed-gender team funding decreased from 16.8% to 14.4%, while angel and seed funding dropped from 22.5% to 21.2%.
So, where did all the funds go? Well, as the numbers show, 86% of total funding last year went to all-male founding teams. But during the same period, funding for women-led startups fell to 2.3%, or $3.5 billion, from 2.5%, or $3.25 billion.
Unfortunately, these stats show that not all players are experiencing the same level of growth as the industry. Female founders’ funding is declining year after year, owing largely to the industry’s dismissal of their ventures.
However, there is still room for growth and change. As investors, we must do everything possible to change these statistics and make the industry more accessible. Investing in women, after all, not only promotes innovation and diversity but also increases profits.
Female Founders Outperform Males
According to the Boston Consulting Group, VCs could have made an additional $85 million over five years if they had invested in both women and men-founded startups equally.
It’s a known fact: diverse teams tend to perform better. We need people from all walks of life sitting at the table, bringing their unique perspectives and innovative ideas. As research shows, startups founded and cofounded by women are significantly better financial investments. For every dollar of funding, those startups generated 78 cents, while male-founded startups generated less than half that, at just 31 cents.
Women founders succeed in several areas, which leads to increased revenue. Even with these advances, treatments still tend to differ from person to person. We know that we still need to be giving women-led businesses the same opportunities, though.
Although women play a significant role in the world of finance, they are often the subject of gender-based interrogation. The most troubling questions often asked in interviews about personal risks are directed at women, which can cause a lack of confidence and undervaluing their accomplishments.
But female founders bring unique ideas to the table based on their experiences. The majority of women still handle most household and familial tasks, and by doing so, their unique perspective is unlike their partners’, where they have the advantage of embracing home issues more seriously.
Rather than falling victim to the downward spiral of gender-based discrimination, investors should make sure they review pitches with objectivity in mind.
Female Founders Are More Focused on Impact
Divulging the workforce opens up many opportunities in venture capital. Given that women purchase 70-80% of consumer goods, investing in women-founded businesses will result in products and services that will appeal to everyone.
The experience of raising capital for women has been tainted by outdated stereotypes and a scarcity of female investors. In order to close the funding gap for female founders, male and female venture capitalists must adjust their viewpoints and see unique strengths as opportunities.
The bottom line is that businesses must rethink their values and ensure they are implementing their side of the bargain. Losing a company because they do not see the value in developing a relationship with you could mean missing out on the next big thing.
This work is something that my new initiative, The Allyship, is focused on. Follow along as we dive deep into the details of encouraging more women in the investment space, where we’ll be launching a podcast and speaking to women about their lived experiences.