Investment in Female-Founded Businesses Increased in Dollar Value, Decreased in Percentage in 2018

According to Pitchbook, 2018 could be the biggest year for venture investment since the glory days of dot-com. In the first six months of the year, $57.5 billion was invested in American startups, and that number is expected to nearly double by year’s end. This is good news for the U.S. economy. Yet, one has to ask if the number could be more.

Female-founded businesses remain a very small percentage of investment portfolios. At a total raise of $7.2 billion, women founders represent 12.5 percent of the first half of 2018 VC transactions thus far. If the pace and size of investments continues as predicted, female founders are on track to receive more external funding than the previous year ($12.3 billion), but the percentage would be lower. The continued lack of investment in startups with at least one female on the founding team continues to baffle many in the ecosystem.

The confusion is understandable: Businesses with a female co-founder perform 63 percent better than male-run businesses.

Women invest 90 percent of their earning back into their communities. Women are more than half the workforce. Women start businesses at six times the rate of the national average. Women make or directly influence upwards of 83 percent of all consumer buyer decisions. Women account for half of PhDs, half of business school applicants, 67 percent of college graduates, and more than 70 percent of valedictorians across the U.S.

With so much power and impact, the real question is: Why does investment in women continue to stagnate?

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What’s the problem?

The Diana Project, a global study of the state of female entrepreneurship, found that only 2.7 percent of startups funded by venture capital had a women as CEO. Additionally, 15 percent of total venture capital went to companies with at least one woman on the executive team (but not necessarily companies with women on the cap table). Women are clearly qualified to turn incredible ideas into thriving businesses; the numbers just don’t add up (pun intended!). The research shows that the problem is simple: lack of access, and unconscious bias.

There are roughly 150 different unconscious biases influencing every decision we make at work. Without a catalyst to interrupt how decisions are made, nothing changes. It’s that simple. Yet, more and more, the excuse of unconscious bias does not pack the punch that it used to carry. In the age of the #MeToo and #TimesUp movements, it feels impossible, negligent even, that VCs continue to ignore their best revenue source.

This begs the question: Is the bias that keeps women from access to startup capital unconscious or conscious?

Gender inequity is now a common topic in the ecosystem, from the inequitable practices in venture capital to public legal suits such as Ellen Pao versus Kleiner Perkins to the female entrepreneurs who shared their stories of sexual harassment by male investors in Katie Benner’s New York Times articles. The discrimination against women in the entrepreneurial ecosystem is hard to miss. While not all women are on the receiving end of sexual harassment, the continuing abysmal number of female venture partners (at roughly 7 percent) and the stagnation of funding female ideas paints an overall grim picture. There is a problem, and that problem is not women. It may not even be men. The problem may be something else entirely.

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How do we fix the lack of investment in women?

The underlying problem of inequitable funding is an extreme imbalance of power that perpetuates the continued oppression of women in the workplace. Without a formal catalyst to disrupt bias-based decision making, moving the needle for female founders can feel impossible. Yet, there are steps that can be taken to disrupt a system that no longer suits the world in which it lives.

When it comes to the magnitude of cultural change that is required to shift the status quo, sometimes the small steps can make the biggest leaps. Women control 51 percent of the personal wealth in the U.S., and the CFA Institute expects the global volume of women’s wealth and income to increase within the next five years, along with their influence in wealth management markets.

In order to qualify as a viable angel investor, one must have $1 million in assets or make at least $200,000 a year for five years. In 2016, there were approximately 300,000 self-described angel investors in the U.S., 26 percent of whom were women.

When women invest in other women, a sea of change will happen. Women are relational in their decision-making. They consider the impact of decisions on the most critical stakeholders. Perhaps that is why women tend to make solid investment decisions.

Further, more and more men are publicly declaring their support to solve gender inequity. The system lends to an unconscious bias that favors investing in and hiring people who look just like the person one sees in the mirror. Men are the vast majority of money and power. When a man openly questions gender-biased decision-making and role models a new investment thesis, others will take notice.

After all, gender inequity in the startup ecosystem is as much an economic issue as a human one, and it is up to all of us to solve the problem.

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