Female founders prove resilient as they seek equal share of VC dollars

Originally published by Venture Capital Journal, November 3, 2022

A new report on women in VC shows that female-founded companies are weathering current market conditions at least slightly better than their male-founded counterparts.

Years of discussion and multiple initiatives to boost dollars going to female founders and grow the share of check writers who are women haven’t translated into major changes for the venture industry.

PitchBook’s fourth annual report on women in US venture shows little or modest progress over the past year. The market researcher noted that both total deal value and count are down from record highs in 2021, but that female-founded companies appear to be in line with their male-founded counterparts, if not slightly more resistant to current market conditions.

Through the first three-quarters of 2022, female-founded companies have raised $32.4 billion, accounting for 17.2percent of total deal value. Despite global economic conditions causing a downturn across markets and creating a difficult fundraising landscape for start-ups, female-founded companies’ share of total deal value remains steady from 2021.

Venture capital raised by founding teams comprised entirely of women amounts to just 2 percent of the total raised by all-male founding teams. All female-founded companies collected $3.6 billion in VC through the first three quarters of this year, compared to $154.9 billion raised by all-male-founded companies, according to the report.

Median early-stage pre-money valuations for female-founded companies grew by 39.2 percent from 2021, outperforming the valuations for all US-based companies, which grew by 33.3 percent. While late-stage valuations declined by 5 percent across the board, they fell by 2.9 percent for female-founded companies.

One bright spot in the report is that female general partners at US VC firms accounted for 16.1 percent of the total as of September 30, up from 15.4 percent at the same time last year and just 12 percent in September 2019, PitchBook reported.

Despite the modest progress, “most institutional investors are operating in male-dominated environments, [which] narrows the lens through which firms view pitches and investment opportunities,” the report stated. “The lack of female representation in these firms has a ripple effect on the founders they invest in as well as the LPs that trust them to generate returns. Promoting and recruiting female check writers can open doors for more female founders and diversify portfolios.”

When it comes to what size firms female decision-makers work at, there seems to be little correlation. The largest portion of firms with female decision-makers are those with an AUM of $1 billion to $5 billion, making up 23.2 percent, closely followed by firms with an AUM of $100 million to $250 million at 22 percent. The smallest portion is firms with an AUM of $5 billion to $10 billion at 4.6 percent, while firms with an AUM of $10 billion or greater are slightly higher at 4.6 percent.

Jesse Draper, founding partner of Halogen Ventures and a fourth-generation venture capitalist, is frustrated by the slow pace of progress. The push to get more VC dollars to female founders needs to come from the male-dominated LPs and GPs, she said.

“What it all comes down to is men are puppet masters of the LP world,” she told Venture Capital Journal. “Men make up the majority of wealth managers and have their network of funds they invest in, which rarely include women-led firms. Every institution says they have capital going towards women and diversity, but women still aren’t being funded.”

Joanna Drake, co-founder and managing partner of Magnify Ventures, told VCJ, “It is both intuitive and now data-driven that more women in the investment decision-making roles at venture firms will help to increase the number of diverse founders who successfully raise venture capital, specifically female and under-represented founders.”

Her personal experience demonstrates that a firm that is female-owned and managed will actively engage with other female investors and founders.

“We are proud that across our portfolio, 63 percent of companies have a female founder and 50 percent have a founder of color,” Drake said. “Also, 50 percent of our companies have a woman CEO, and 100 percent of the investor syndicates we have participated in include other female investors.”

Outside of female decision-makers at firms and institutions, female angel investors have proven a reliable source of capital for female-founded companies. As with every other metric available, 2021 saw a record high of 935 active female angel investors. So far in 2022, 507 female angel investors have made at least one deal.

Female-founded companies have raised $7 billion in deals with participation from female angel investors this year, more than any year before 2021, and across fewer deals, suggesting larger deal sizes. PitchBook’s report did not give an exact number but it showed that deals with both female founders and female angel investors reached a record high of 36.9 percent, an increase from 35 percent in 2021.