The venture capital industry as we know it is broken. At least for women, that is.
In terms of funding to female founders, 2020 was one of the worst years on record. Globally, only 9% of all funds earmarked for technology startups went to founding teams that included at least one woman. Single female founders and all female teams raised just 2% of all VC dollars, Crunchbase data shown.
The surprising thing is that this number is actually Low Much earlier than when we first started counting a decade ago, many high-profile diversity initiatives were launched with the goal of fixing this problem.
This funding gap is not just a moral crisis – it is an economic crisis. There is a lack of investment in women-founded startups. missed opportunity Billions of dollars worth. that’s because overwhelming evidence Startups founded by women outperform startups founded by men: they generate more revenue, make more profits and exit faster at higher valuations. and do it all by lifting very little money.
What we are doing is not working. Through the research for my next book on female founders and funders, I kept asking myself the same question: When it comes to fixing the funding gap for female founders, what can we do that will stop everything else? To be easy or unnecessary?
Now I believe our best bet for long-term turnaround is to focus our efforts on increasing the number of female investment partners who can write bigger seed checks. Why over here
Female investors are 3 times more likely to fund female founders
Recently, one of the world’s top VCs told me how challenging it is to diversify our senior team. He expressed it as an accepted fact and widespread belief. It’s a Common Trope in Silicon Valley: Everyone Wants Gender Diversity, But It’s So Hard To Find All Senior Women!
In the venture capital industry, who do you hire at the senior level, who do you hang out with. And who you appoint at the senior level determines who will return your funds.
As studies now show that women investors are up to three times more likely As for investing in female founders, it’s clear that the fastest way to fund more women is to hire more female investment partners with check-writing capability. Impact on venture firms? Return.
“When US VC firms increased the proportion of female partners, they benefited with 9.7% more profitable exits and a 1.5% increase in annual total fund returns,” explained Lisa Stone of the WestRiver Group.
Pick up all and data from Pitchbook “Reinforce the link between hiring women decision makers at the investment level and outperforming at the fund level,” says 69.2% of U.S. VCs who made up the top-quartile fund between 2009 and 2018 were women in decision-making roles. “
It should come as no surprise that female investors are more likely to invest in female founders. This is because humans have a tendency homosexuality – The tendency to attract likes and for equality in relation to breed.
Homophily is the reason why a vegan VC is more likely to invest in a vegan food tech, a gamer is more likely to hang out with gaming founders, or a parent is more likely to invest in a parent market. people move towards what do they know.
Dina Shakiro, who is a woman and a mother, most recently led Lux Capital’s investment in the women’s health unicorn maven. Shakir had several high-risk pregnancies with complications, emergency C-sections, NICU stay and breastfeeding challenges.
“It is no coincidence that I have been joined on Maven’s board of directors by four other moms … and a new father … whose personal journey has also informed his professional belief,” Shakir wrote in one. middle rank.
Why seed screening has the biggest impact on ecosystems
I believe that to fix the funding gap for women founders and start the virtuous cycle of venture capital investing in women, we should focus on getting more seed checks into the hands of women founders. that’s because Seed investment is a leading indicator Are we moving in the right direction in closing the funding gap for women, according to Jenny Lefcourt, Partner at Freestyle and Co-Founder of pick up all, a leading non-profit focused on diversifying the VC industry.
This does not diminish the importance of investments made in women founders in the later stages. When a female founder lands Series D Capital, it increases this year’s number of female founders and possibly brings that particular founder closer to a liquidity event that will allow her (and her executives) to turn in more women. Will motivate you to invest.
That said, the biggest impact on the ecosystem of the future will be reaching a significant Series D funding like Maven one day by widening the top of the funnel and giving more women a shot at the seed stage. After all, what we fund now, who we fund later.
Why testing the big seed matters most
Finally, the size of the check is also important when considering how to have the biggest impact on the ecosystem.
i already know that microchecks are important To build an inclusive ecosystem. When women invest at the seed level – in any amount – they start a virtuous cycle of women funding women. that’s why when I stepped into my portfolio company to lend a hand When the single female founder took parental leave, one of my major projects was to develop Jaffa House, a way for Jaffa’s own executives to more easily invest in other female-founded startups.
That said, large party rounds are made entirely of small angel checks and are few and far between. Similar challenges are faced by budding fund managers with smaller checks. Although there are a huge number of emerging managers 9 times in seven yearsThe reality is that most budding managers simply don’t have that much money.
Are female venture capitalists running their own microfunds more likely to invest in Wonder Woman founders than in Tier 1 funds that have few or no female investment partners? Yes. Will it take them a long time to compete with those Tier 1 funds in terms of check size? Yes.
This is why it matters a lot when major funds hire or promote women at the partner level. Not only does this give female founders a better shot at funding than high-signal shops, but Top Funds’ moves are an important signal to others in the ecosystem: In venture capital, women investors don’t have to sit around kids. Table.
Why we should hire women investment partners
We all know that great returns in early-stage venture capital come from betting big on great ideas that others aren’t betting on. that’s why VC investing is against the definition. Thanks to our increasingly globalized world and clear data showing the importance of diverse teams to make good decisions to achieve those returns, in 2021 no one really believes that Palo Alto will have billions of single white dudes. The dollar has a monopoly on ideas.
However, due to the nature of homophyly, venture capital remains a highly homogenous industry, and human social and economic interactions and decisions are deeply influenced by these principles. No matter how much we work, birds of a feather really do flock — and fund — together.
It all leads to one place: The most obvious route to funding different types of founders with different types of ideas is to put different types of investors on the investment side of the table. To get more money to female founders, we need more women who can write checks. So prioritizing hiring female investment partners who can write big seed checks is the key to fixing the funding crisis for female founders and increasing VC returns around the world.