The more things change, the more they stay the same. The world may be sheltering in place, adopting work-from-home trends like conducting business over Zoom that would have been years away if not for the pandemic, but one thing remains woefully, stubbornly persistent: the state of venture funding for women, and by extension, the rate of female representation on the Next Billion-Dollar Startups list.
Of the 25 future unicorns on the 2020 list, just three boast female chief executives: Homebound cofounder and CEO Nikki Pechet; Mirror founder and CEO Brynn Putnam; and Algolia CEO Bernadette Nixon. A fourth company, Lyra Health, was cofounded by Dr. Dena Bravata, but she is not the company’s CEO.
At the CEO level, this marks a slight improvement over 2019’s numbers; at the founder-CEO level, however, female representation among Next Billion-Dollar Startups is flat. This is not for a lack of effort: Forbes and partner TrueBridge Capital Partners sought nominations for more than two months, received 144 “valid” entries (down slightly from last year’s 150). Just 11 of these companies had female leaders.
It is, however, for a consistent lack of funding. Female-founded companies scored a record $3.3 billion in venture capital in 2019 (according to PitchBook). But this figure represents just 2.8% of all capital invested in American-based startups. Global figures from Crunchbase show similar trends: Despite some $20 billion going toward female founded and cofounded startups last year, just 3% of the global venture volume went to female-only teams.
The numbers work against women beyond the cap table, too. While the percentage of startups with female founders has doubled since 2009, it still stands at just 20%, a rate that creates an unfavorable math problem: “The percentage of startups that become unicorns is still an incredibly small percentage of startups that are created,” says Alaina Percival, the CEO of Women Who Code and partner at Valor Ventures. “When you look at funding and support that women-led startups are getting, it’s such a small percentage that you’re expecting a much much smaller pool of startups to achieve such a high and exclusive status of being a billion-dollar startup.”
Exacerbating matters is the gender makeup of the people doling out the capital. “Unfortunately, venture capital is 91% male decision makers, and that lends itself to more male-oriented businesses getting backed,” Sequoia partner Jess Lee said during a recent webinar. (The precise number varies from report to report, but directionally, she’s correct.)
While men are as capable of backing female-led companies as women, misunderstandings and missed opportunities abound. Carolyn Childers, the cofounder and CEO of women’s networking platform Chief—which just last week announced a $15 million Series A1 round of funding, bringing its total venture haul to $40 million—experienced this while trying to raise her seed round.
“We so often got the comments of, “do women really need this?’ or ‘this feels like a great lifestyle business, but I don’t see how this could be a billion-dollar business.’ Despite the fact that we could really show need and traction,” she says.
Childers eventually got investors such as General Catalyst, Inspired Capital and GGV Capital on board and says that having backers who believe in her vision has made raising the subsequent rounds easier than the seed. But she’s quick to note that this has not put Chief at a Series B or C level, which could qualify her company for near-unicorn status, nor does she expect raising those later rounds to be easy.
“I think where you really start to see the decrease in women’s representation at the leadership, cofounder and founder level, is at the B to C [stages of funding],” she says. “Fundraising for an A is very much based off metrics on how you’re able to perform from seed to A. Series B to C, is ‘where do you go to next, what is the big vision?’” With fewer metrics to lean on, and potentially more bombast required for these pitches, she says, it’s an area where women have historically struggled.
While continued conversations about this dearth of representation—plus the continued work of organizations like Times Up and All Raise—should eventually help change the entrepreneurial and venture landscape, two recent speed bumps have emerged: a PitchBook report that Q1 2020 funding of female-founded companies plummeted compared to the first quarter of 2019 and, of course, the pandemic. Childers and other entrepreneurs have referred to March as being a time when VCs “circled the wagons,” focusing more on their existing portfolio companies than pursuing new ones.
“I am worried about the potential for a backslide here,” Sequoia’s Lee said. “What I don’t want is for women to take one step forward, two steps back because people go back to what is safe and comfortable to them [during the coronavirus crisis].”
Lee noted that she’s continuing to meet with female founders every day, and those meetings make her optimistic about the future. “I’m personally optimistic that this is the moment where women can shine,” she said. It’s a perspective that Alexa von Tobel, the founder of LearnVest and venture firm Inspired Capital, happens to share.
“For whatever portion of the next year, and definitely into the future, we’ll see more and more work from home probably become more permanent. I think that could be a tidal wave of productivity for more and more female founders to say, ‘I want to go build a business,’” von Tobel says.
Those new businesses won’t immediately become next billion-dollar startups, but von Tobel says the time at home can help established companies, too.
“We’re getting a lot more time back from things that were not productive to long term business, like nonstop travel, nonstop cab rides, stop commutes, nonstop getting all dressed up. We’re finding this is a productive way to do a lot of work,” she says. “As the mother of three little kids, the fact that I’ve been able to do every breakfast time and every bedtime, for the last 12 weeks, while doing probably some of my best work in my career, I think speaks volumes to the fact that there is a new brave world we could have out there. And that could be a step forward in equalizing the playing field.”
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