While we didn’t beat the record set in 2021, the capital invested in women-only founding teams (or teams were all founders were women), as well as teams with at least one woman involved, still made impressive advances in 2022, ending the year with 1,001 deals closed by US startup teams with all-women founders. (The record currently stands at 1,190 in 2021.) New York is still in the lead for most deals closed by all-women teams, followed by the San Francisco Bay Area and Los Angeles, (although the Bay Area holds the top spot for total funding raised in the same category).
However, a somber reality still needs to be addressed: venture funding to startups founded by only women amounted to a dismal 1.9% of total allocated assets under management in 2022, a noteworthy decline from 2.4% in 2021.
Considering we were fresh out of (and still recovering from the effects of) a global pandemic that ground most operations to a halt, and that this still means we are faring better than Europe (i.e. European VC female founders only represent 1.1% of total allocated assets), this is happening at a time when there is a popular and palpable demand for opportunity, representation, and transparency from historically marginalized groups and communities - especially women. While there is a moderate and steady increase of women in low-level and mid-level VC positions, women in senior VC positions have languished below 25% for the last couple of years. Less than 3% of VC firms have a woman CEO, and women still make up less than 10% of the overall venture capital population. And so, when we look into some of the underlying causes that block or discourage funds moving to women led companies, we learn that we still have a long way to go when it comes to resolving the representation disparity amongst capital allocators.
There is some optimism to be felt in knowing that founding teams with mixed genders made up 17.2% of last year’s funding. However, this optimism wanes when we realize that the massive gap between teams of only women and teams with at least one woman, a gap that has existed for many years, exposes the prevailing assumption that men still need to be part of the decision-making to guarantee success in business.
The drop from 2.4% (2021) to 1.9% (2022) is reportedly due to the post-COVID economic turndown in the US. The last time a similar trend was experienced was back in 2016, and before that, 2012. All three years were marked by financial decline and political uncertainty. It indicates that “investing in women'' is still considered “high-risk”, and any downward shift in the economy makes investors shrink back and return to what they deem safer, more familiar, and more proven: men. Or, to put it in a more grim perspective: having female founders in a team is considered to be a charity case (the token hire) rather than good investment, and these charitable activities are put “on hold” whenever there is a financial slump.
This is all despite data showing benefits of backing female-founded startups including, but not limited to, more profitable and diverse investments with higher returns. Thedata in 2021 showed that startups with at least one woman founder made 78 cents of revenue per US Dollar of investment, when male-only startups made only 31 cents in comparison. In addition, 69% of VC firms that earned top scores from 2009-2018 had women among their decision-makers. Women of color, in particular, are the fastest growing group of entrepreneurs in the US. For some time, the evidence has consistently supported the conclusion that better diversity is associated with better returns.
So how do we rectify such blatant bias in the system? One way is good policy. Pyrium is proud to be a co-author in a California Senate Bill (SB 54) that would require all venture funds in California or who receive California funds, to report the diversity statistics among the founders in their portfolio companies which passed on Oct 8. 2023. It’s one step towards understanding the depth of the problem, and to hold the industry accountable. The second way is for all of us, non-accredited investors and accredited investors alike, to practice equitable diligence and equitable investing by being self-aware of our own potential unconscious bias and educating ourselves on how to mitigate it.
Equity crowdfunding is proving to be a good alternative by allowing a large number of individuals to invest in a private company at smaller price points. By circumventing traditional venture capital altogether, equity crowdfunding has helped founders who don’t necessarily fit into the Silicon Valley mold (white, cisgender male, Ivy League alumni) by providing the tools for them to raise from their own supporters and communities. A great example is Popcom, a company founded by a innovative Black, female entrepreneur - now a multi million-dollar success story. Addressing the need for modern vending machine solutions, Popcom's impressive growth is fueled by its ability to secure capital from the very community it serves, creating a compelling narrative of achievement.
As a female-founded company, Pyrium is especially interested in equitable funding opportunities for all.. We believe that the future of innovation and entrepreneurship is bright and we believe that equity crowdfunding has a role in a better, more enriching venture experience for everyone. Know any amazing female founders building cool solutions? Share your investment journey with us at Pyrium's Investor Club.
