The number of women-owned businesses has been increasing quickly, yet the allocation of venture capital to female entrepreneurs remains far from equitable. In recent years, some work has been done to address the inequities in funding between companies led by men and those led by women, yet the disparity remains.

Last year, less than 3 percent of all venture capital went to companies headed by women. Additionally, more than 90 percent of all the decision-makers at venture capital firms are men. However, women account for nearly 40 percent of all business owners in the United States. These inequities become even more glaring when accounting for race and ethnicity. Black women represent only 0.2 percent of entrepreneurs supported with venture capital.

This is what you need to know about the gender funding gap and why corporate venture capital is uniquely positioned to help close that gap:

Women Entrepreneurs Are a Potential $4.4 Trillion Resource for VCs

Aside from the optics of the lack of gender and racial diversity in the era of #MeToo and #BLM, the gender gap in venture funding is simply bad for business development. Women remain a prime untapped resource in entrepreneurship. Research from Morgan Stanley indicates that venture capitalists could collectively expand projected returns by $4.4 trillion if they pursued more equitable approaches to investment.

Moving forward, a nontraditional form of venture capital may move in to take advantage of this opportunity: corporate venture capital, or financial backing from an existing corporation. A number of larger corporations have stepped forward to offer corporate venture capital, especially to women-owned businesses.

About Corporate Venture Capital

Corporate venture capital is not a new approach to funding entrepreneurs. In fact, Nest, DocuSign, Udacity, Slack, and 23andMe, among other major companies, all received funding from Alphabet’s Google Venture, a division of Google. Some big names in venture capital are actually related to corporations, including Accenture Ventures and Intel Capital. These firms invest on behalf of their parent corporations and act as a division of those companies.

The point of these firms is driving innovation to make the target startups more competitive. Usually, the capital is used to build on strengths and expand market holds or address specific weaknesses that could be limiting performance. Corporate venture capital firms are not driven solely by financial return and are often more concerned with strategic alignment and potential acquisition.

Corporate Venture Capital Firms Have More Women in Leadership

Since 2015, corporate venture capital deals have tripled in volume. In 2018, these transactions accounted for nearly a quarter of all venture capital. Moreover, three-quarters of Fortune 100 companies engage in corporate venture capital. Interestingly, the gender disparity in leadership teams at corporate venture capital firms is smaller than it is at more traditional VC firms.

Among venture capital firms as a whole, women account for less than 10 percent of all partners and executives, but the figure is 16 percent at corporate firms. Research has shown an interdependent relationship between representation and who gets funding. This means that corporate firms are in an excellent position to address the investment gap.

Startups Led by Women May Be More Successful Than Those Led by Men

Some corporate venture capital firms are already seeming to target the gender gap. For example, Amazon recently announced the acquisition of Zoox, a startup in Australia that engineers self-driving cars. The company is headed by Aicha Evans, a Black woman. Studies suggest that companies owned by women may be more likely to be successful.

On average, startups founded or cofounded by women generate 10 percent more revenue than those established by men. For investors, women-owned startups generate 78 cents per each dollar invested. Those headed by men generate only 31 cents. These data show that female entrepreneurs are not just great for investors, but also for the overall economy.

#BLM and Corporate Venture Capital

Black women in particular are an untapped resource. Between 2014 and 2019, black women started more than 40 percent of the net new women-owned businesses in the United States. Black women account for only 14 percent of the female population, so this rate of entrepreneurship is encouraging.

However, despite this, black women still receive a disproportionately small portion of venture capital. Some firms, such as Backstage Capital, have made it their mission to address this disparity after recognizing the pure economic opportunity available. Backstage focuses not just on black female founders, but also other demographics that have historically had trouble accessing funding and resources.

Investing in Women May Help Mitigate the Economic Devastation of the Pandemic

Firms like Backstage are a promising step forward. So is the recent Amazon acquisition, which could trigger other corporate venture capital firms to become interested in women, and especially minority women. Corporate firms are in a unique position to step up and address the funding gap, especially as they continue to make more investments and account for a larger percentage venture capital.

Investing in these underrepresented segments has only become more important because of the coronavirus pandemic and its economic consequences. Boosting female entrepreneurs could help speed economic recovery in the United States and other parts of the world.