In the business world, there are many gender gaps. While there are more women than ever before entering tech, which is great for driving diversity, at the same time, very little movement has occurred in the amount of venture capital money going to female founders. This issue is most pronounced in fintech, where women have secured only a single percent of all investment in the past 10 years. Of course, women in fintech are doing incredible things and deserve a much larger portion of the overall funding.
The Glaring Gender Gap in Venture Capital Financing
Of all venture capital investments that occurred in 2019, 2.8 percent went to women-led companies. Moreover, only about a fifth of all venture capital went to startups that have at least one woman on the founder team.
There is also a discrepancy in how much these female founders receive from investors. Both female-founded and -cofounded startups have an average deal size that is less than half of startups led entirely by men. This is especially concerning considering the increasing number of women entrepreneurs. Altogether, women account for 28 percent of founders yet receive only a small fraction of all funding. When you consider race and ethnicity, the picture is even worse, with Black and Latina women receiving only a combined 1 percent of funding raised in the past decade.
Often, women must take extra steps to secure funding. They frequently enlist the help of their networks and communities to get their foot in the door, as direct connections and introductions to potential investors are the best ways to gain serious consideration. In addition to working harder to be taken seriously, women must appear completely confident and knowledgeable, and, even then, investors will often defer to any male members of the team with questions. However, women must continue to fight for funding and secure a larger foothold in the venture capital scene.
How to Overcome the Barriers to Funding on a Systemic Level
Women can take some steps to increase their chances of securing funding on an individual level, but it is important to think about how to create change in the venture capital community. One of the most important problems to address is the lack of female decision-makers at venture capital funds. The Harvard Business Review published a study showing that investors ask different questions of male and female founders, which, in turn, means gender plays a big role in decisions. Having more females in roles of power at venture capital firms would help even the playing field and normalize investing in female entrepreneurs. As they continue to push for funding and create a successful business, they put themselves in a position to join or found venture capital firms.
The disparities in venture capital leadership teams have led to the creation of women-focused funds. These funds could also help close the gender gap and open up more opportunities, especially as they foster success and break down typical gender stereotypes in business. In addition, it is important to note that female venture capitalists are more likely to invest in companies founded by minorities. These funds play an important role in driving diversity in the investment community and establishing a new dynamic.
The Importance of Gender Equality in Venture Capitalism
Gender equality in funding ultimately leads to better businesses and stronger teams. Companies that have tried to include both men and women in senior decision-making roles typically establish more dynamic work environments with greater diversity, which ultimately powers better business decisions. People from different backgrounds bring varying experiences and insights to the table to help make ideas as strong as possible. Furthermore, these companies help break down unconscious bias and set a good example for why it is important to consider women seriously. In fact, Boston Consulting Group published a study showing that women-founded startups generated 78 percent of each dollar of investment compared to 31 percent for men-founded companies.
Looking at other parts of the world also shows the value of investing more in female entrepreneurs. In Latin America, for example, women founders receive a much higher proportion of investment than in the United States. There, women have become the leaders of the fintech revolution. There are five times as many female-founded fintech startups in Latin America than the global average. More than 35 percent of the region’s fintech startups have female founders, and the fintech industry regularly secures 31 percent of all venture capital in the region. In the United States, extending funding to more women would increase the diversity in thinking and potentially boost economic growth, especially considering the larger return seen on average from female-led companies.