Women founders and the question of capital

Spend enough time around entrepreneurship and you hear the same claim over and over: venture capital rewards the best ideas and capital flows to the strongest founders.

The numbers tell a more complicated story especially when it comes to female founders. And, frankly, I’ve been writing this story for years with the same punchline. The ratio of funding to female founders remains unchanged and, well, I'd call it flaccid.

Reporter Sarah Brodsky dug into the issue in her article “Women Founders Confront the Gender Funding Gap.” Drawing on venture data from PitchBook, Brodsky reports that startups founded solely by women receive just over 2 percent of venture capital funding. Teams with at least one woman founder capture roughly 13 percent. The rest flows to companies founded entirely by men.

Repeat the number out loud: two percent. That’s insanely low and remarkable that figure has barely budged in years.

Research from the Harvard Kennedy School’s Women and Public Policy Program, summarized in a 2023 analysis of venture investment patterns, shows that women-only founding teams have averaged roughly 2.4 percent of total venture capital funding over the past three decades – that’s 30 years, folks.

Thirty years is enough time for entire industries to appear and disappear. Hell, it’s enough time for an entire human to go from birth to adulthood. Venture capital itself has exploded into a global market measured in hundreds of billions. The share going to women founders has remained almost exactly where it started.

Startups founded solely by women receive just over 2 percent of venture capital funding.

PitchBook’s 2024 annual venture report shows the same pattern holding steady. Female-only founding teams received roughly 2.3 percent of global venture capital that year. Male-only teams captured more than 80 percent. Mixed-gender founding teams accounted for the remainder.

Data compiled by Female Founders Fund and PitchBook indicates that women founders receive about 3 percent of seed-stage venture funding. By the time companies reach late-stage rounds, the number slips below 2 percent. In other words, the capital pipeline narrows before many companies have a chance to prove themselves.

Investors like to describe venture capital as pattern recognition. The phrase comes up constantly in conversations with venture partners. The problem is that patterns... they're patterns and patterns, like bad habits, need to be broken.

For most of modern venture capital’s history, the archetype of a successful founder has looked remarkably consistent. It’s sort of like an archetype in Marvel comic books. You can see it in the funding data.

What makes the numbers more interesting is that performance studies tell a different story. Boston Consulting Group examined the outcomes of startups founded by women in a 2018 report titled “Why Women-Owned Startups Are a Better Bet.” The researchers analyzed five years of investment and revenue data from companies in the MassChallenge accelerator.

Their conclusion was simple and perhaps more than a little awkward for the venture industry.

Startups founded by women generated more revenue per dollar invested than startups founded by men. Ha! Take that Elon Musk.

The report found that women-led startups produced seventy-eight cents in revenue for every dollar of funding, compared with thirty-one cents generated by male-founded companies. In venture capital terms, that kind of capital efficiency usually earns admiration.

Performance was not the problem. Access was. But we know that.

Meanwhile the broader startup economy has been changing quickly. Women are launching companies at record rates across sectors ranging from health technology to consumer products to artificial intelligence. Some of those founders raise venture capital. Many do not. Let's be honest – most do not.

They bootstrap, raise smaller angel rounds, or build profitable companies the slower way over longer periods of time.

Those funding realities shape the companies that follow. Founders working with limited capital often operate with tighter discipline. They pay closer attention to margins. They build products that customers need.

That dynamic rarely appears in venture mythology, which tends to celebrate scale and speed above everything else. Yet profitable companies with steady growth have defined entrepreneurship for most of modern business history.

The venture industry has begun paying more attention. Women partners at venture firms are still underrepresented but slowly increasing. Funds focused specifically on women founders have emerged. Angel networks and accelerator programs designed to expand access to capital are appearing across the ecosystem.

Progress exists, but it has moved slowly – it continues to move slowly.

Meanwhile the startup world keeps expanding. Artificial intelligence, climate technology, and biotech are creating new markets. The next generation of founders will build companies in industries that do not yet exist. Fifty percent of those founders will be women.

Madam C. J. Walker, one of the first American women to become a self-made millionaire through entrepreneurship in the early twentieth century, said it best more than a century ago.

“I had to make my own living and my own opportunity,” Walker said. “But I made it.”