Melinda Gates has called venture capital an “old boy’s club,” and she has a point—the space is largely dominated by men. There are still relatively few women in venture capital, and that gender gap could hurt women entrepreneurs seeking funding.
Here’s a look at gender parity in venture capital—and why there’s hope that women in venture capital are on the rise.
Firms Founded by Women Receive a Small Share of All Venture Capital
The vast majority of venture capital goes to companies founded exclusively by men. Fortune reports that in 2017, companies with all women founders received 2.2% of total venture capital awarded in that year—meaning only $1.9 billion out of $85 billion went to women-founded companies. Another 12% of the total went to companies founded by mixed-gender teams.
Women entrepreneurs also lag behind men when it comes to follow-on funding. An analysis by PitchBook revealed that firms with all male founders land follow-on funding close to 35% of the time as of 2017, whereas firms with all female founders receive a second funding round less than 2% of the time.
Research suggests that bias may play a role in the way funding is awarded. Studies by Alison Wood Brooks at the Harvard Business School found that men are 60% more likely to receive funding than women, and participants in an experiment favored pitches from men over pitches from women even when the ideas being pitched were the same.
Such evidence of gender discrimination in funding should alert investors that some of the best ideas for new companies may be overlooked. When funding decisions are influenced by gender biases, investors may miss out on opportunities to back great companies. At the same time, the world misses out on innovative solutions and technologies when bias in the funding process makes it harder for women-founded firms to take off.
Women Are Still Underrepresented in Venture Capital . . . But the Industry Is Evolving
When venture capitalists look around at their colleagues, they’re likely to see a room full of men. And if lead investors are more eager to back founders who resemble themselves or their peers—as some argue they are—that puts women at a disadvantage. Preqin’s Women in Venture Capital report shows that women make up 21% of venture capital employees but that women are more often found at the lower rungs of the ladder. In the industry, 36% of women hold junior-level positions, 29% hold mid-level positions, and 11% hold senior-level positions. Out of all venture capital board representatives, just 6% are women.
Although men outnumber women, women are increasingly making their mark on the industry. The proportion of venture capital deals led by women partners has been climbing steadily for the past few years. Preqin found that in 2015, 6.7% of deals were women-led. That share rose to 7.2% in 2016 and again to 9% in 2017. The total value of deals led by women was $2.9 billion in 2015 and 2016, but in 2017 women-led deals added up to $5.1 billion. And PitchBook found that in 2017, startups founded by black women raised five times the venture capital funding they did in 2016—jumping from less than $50 million to nearly $250 million.
Some women are accelerating their impact by pursuing a mission to back female entrepreneurs. XFactor Ventures, which has eight women founders and nine women investment partners, funds companies with at least one woman founder. It’s raised $3 million for its portfolio of 30 firms. Another woman-founded firm that supports companies with one or more female founders, BBG Ventures focuses on early-stage financing for companies in the consumer internet and mobile sector, and it has backed at least 40 firms.
Meanwhile, attention from mainstream figures may help the trend continue upward. Goldman Sachs, for example, recently pledged to invest $500 million in businesses and financial products run by women.
Ultimately, it’s likely that more women will need to go into venture capital and rise through the ranks before the industry can fully achieve gender parity. Although it will take some work to get there, the effort should pay off as women entrepreneurs, investors, and the venture capital industry as a whole benefit from greater gender diversity.