Fortune recently ran an interesting assessment of VC deals by gender and if you’re a glass-half-full person then you’ll be happy to learn that all-women founding teams received $1.9 billion in investment in 2017, which was up from $1.4 billion in 2016.
Putting that sliver of hope off to the side, unfortunately the bad news far outweighs the positive as that $1.9 billion is a paltry 2.2% of the total pot of VC investment. To show the entire picture, all-male teams accounted for 79% of the total pie while mixed-gender groups and those that PitchBook, who contributed the data, were unable to classify, made up the remaining 19%.
And the cavernous discrepancy doesn’t stop at the amount of the investment either—it also encompasses the number of investments as well. Only 368 of the nearly 6,000 VC deals involved female-led startups and just to make matters worse it appears that the amount of the VC checks being written for female founders are significantly less than their male counterparts.
Do you want another uncomfortable stat? The largest investment in a male-led company was for WeWork, who nabbed $3 billion in VC cash. The largest investment in a female-led company was $165 million for Moda Operandi. That amount was a pitiful 5.5% of the investment that WeWork was able to secure.
What makes the disparity even more distressing is that female-led companies are statistically more successful than ones founded by men. According to First Round Capital, female founders outperform male founders by 63% and TechCrunch has stated that female startups have shown to generate a 35% higher ROI and 12% higher revenues than their male counterparts. In addition, companies with women at the helm have higher first-round (64% higher) and last-round (49% higher) valuations.
As important as it is to point out the gap between the genders in VC funding it’s even more imperative to determine a cause for the gulf. Fortune quoted Julie Wainright, founder and CEO of The RealReal, who noted that a major factor was the lack of female VCs. “When you have different businesses that aren’t proven that may appeal more to a female customer and a female investor is going to be able to evaluate that.”
Another explanation could be the inability of a male VC investor to fully understand products or services that come from companies helmed by women and which may be geared at a female consumer. There may also be unconscious (or, in some cases, conscious) biases towards companies run by women. Yet another version is that women tend to ask for exactly what they need rather than what they think they can get.
Kathryn Minshew, co-founder and CEO of millennial career site The Muse, has a different theory, saying that male- and female-founded companies are fundamentally judged differently. “There’s a lot of research that in business, women tend to be judged on performance and men on potential. The same is true in start-up funding in aggregate as well. I felt that we had generally raised based on what we have done,” she says, while male founders raise capital on what they have the potential to do.
Many in the VC world say that there is perhaps a silver lining for female-led companies in all this. Several have said that they have had to adopt the “do more with less” mantra for their startup companies. Instead of luxury offices and daily fruit and snack shipments for their employees, more streamlined companies can get to profitability faster if they are more focused on actually selling their product.
