Despite decades of women proving themselves in the workplace and progress made by female leaders in the financial industry, it is still difficult for female startup founders to obtain funding from venture capital firms.
In 2021, companies founded solely by women obtained 2.4% of the total capital invested in venture-backed startups in the U.S., according to
This "is a miserable number," said Caroline Winnett, executive director of Berkeley SkyDeck, a startup accelerator run by the University of California, Berkeley.
The reasons for it are complex, she said.
"It's about how women view themselves, how men view women, how we all view women," Winnett said. "I have spent a lot of time around neuroscientists. Women are somewhat neurologically different from men. That led to the survival of our species where the men went out and killed animals and the women stayed back and didn't kill animals, but kept the community going. And I think a little bit of that translates into, who's going to run out and try to hunt down the startup."
Investors sometimes assume male founders will get them a higher return, she noted. Case in point: the billions in funding given to Sam Bankman-Fried.
"It's the stereotypical, this is the guy who's going to change the world, a young guy who has a lot of hubris and has zero doubt in himself and no qualifications," Winnett said. "Investors like that sense of complete determination and confidence, because we're betting largely on the people. Do we think this is a founder who is really going to make something out of nothing, in an industry where they're either solving a giant problem or creating a giant opportunity? Men are both biologically and socially encouraged to be much bigger risk takers. This doesn't mean they will be better founders — it means they will be perceived as better founders."
The network effect
Another factor, cited by Winnett and others, is that female founders are victims of the network effect.
"For so long, venture capital has been dominated by white men," said Leslie Goldman Tepper, general partner at the Artemis Fund. She estimates that about 95% of general partners making investment decisions are men.
"Sourcing comes from this vast network of white men who have had success and have been around a long time and they keep feeding each other deals," Goldman Tepper said. "That's natural and normal and why women had not been involved for the last 40 or 50 years. Women have been closed out for a long time, and fintech is no different."
The Artemis Fund is focused on female founders of companies that help democratize access to wealth. Almost half of its portfolio is fintech startups. In 2022, Artemis met with 2,000 female-founded startups; 25% of them were fintech companies.
"I guarantee you, most of those companies were not seen by our male counterparts, because they're not looking for them," Goldman Tepper said. "You have to actively look for them."
"This is such a relationship-driven business," said Ksenia Yudina, founder and CEO of the fintech UNest, citing her own experience trying to raise money for her startup, which helps parents save for their children's college tuition. "And women are a lot of times just not a part of the network. Women are excluded from the events and relationships that men tend to form."
There is also a lack of awareness that female founders even exist, noted Katie Palencsar, managing director and global head of venture studio at Anthemis, who leads the Female Innovators Lab fund, an early-stage investment fund within Anthemis focused on investing in female founders in fintech that partners with Barclays and Aviva Insurance.
"I think there's been a misconception in the market that there's a pipeline problem," Palencsar said. "Investors have this conception, well, there's only so many female founders, so that's why it makes sense we only have one in our portfolio. We have seen over a thousand early- stage female founders in fintech. We know that it is not a pipeline problem."
Female founders greeted with raised eyebrows
Women tend to get skepticism and "preventative questions" from venture capital investors as they pitch their startups, Goldman Tepper said.
"They really have to have more to show than their male counterparts," she said.
Yudina said she was asked tougher questions during pitches to venture firms than male CEOs she knows.
"Numerous female founders acknowledge that even at the seed stage, they're getting pulled into a deep dive on metrics, questions about the revenue and even profitability at this stage," Yudina said. "My male founder friends tell me that they're able to raise on the idea, and a lot of the questions that they get asked are about vision, how they're going to beat the competition. It's about the potential."
Because of this systemic issue, venture capital firms don't see that many successful exits yet by female founders, Yudina notes.
"That's why female founders typically get more scrutiny," she said.
It is true that there are few large fintechs led by women and few exits of female-led fintechs. But some say this is simply because it is so much harder for women to get the money needed to grow their companies.
"I guarantee you if 50% of funding to fintechs went to women, you would see more fintech exits that are founded and run by women than you would men," Goldman Tepper said.
Female founders outperform male founders
Some data suggests women outperform men as founders, both overall and specifically in fintech.
A Boston Consulting Group
Female-led fintechs have higher revenue generation and return on investment and they tend to exit earlier, at substantial valuations, Goldman Tepper said.
"We looked at data from McKinsey and Boston Consulting Group before starting our funds about the outperformance and about the two times revenue that they generate for every dollar they get," Goldman Tepper said. "They get much less money, they have to be more efficient. And it's playing out in our portfolio. We see their cost effectiveness, we see their leadership styles, we see their vision and their grit and their determination."
A reason that female entrepreneurs perform well, Goldman Tepper said, is that they are more tested by life.
"They've probably had to go through a lot of family issues while establishing or maintaining their startup," she said. "Some of them have kids, some of them have gone through graduate programs and have managed to keep the family together while creating a company. I've met many founders who have been working while on the delivery table with their computers on their laps. So the grit and the determination are there. I'm not saying that men don't have grit and determination, but they also have not been as tested."
The bearish-looking market of early 2023 could be good for women-led fintechs, in Palencsar's view.
"Female founders have really good track records in building more profitably, with less capital," Palencsar said. "That's not where I want female founders to stay, but that's the market condition that we're entering. And it's going to provide an opportunity for them to create a lot of products and services and software that aren't in the market and female founders are very tuned into this market that we're going to."
What would it take for VCs to invest more in female founders?
Some venture funds offer what Goldman Tepper calls "carve- outs" for minority fintech founders. But billion-dollar funds that allocate $10 million to underrepresented founders or underrepresented venture funds do not help much.
"We are not a carve out," Goldman Tepper said. "Give us 50% of the money. We'll show you what we can do."
For VCs to give more to female-led businesses, "it has to be mandated by the people that are giving them the money," Goldman Tepper said. "If the investors and limited partners in these funds knew the statistics of how many female CEOs are in these portfolios, they would be appalled. The percentage is usually zero to low single digits for these massive funds that have thousands of portfolio companies."
If limited partners required venture funds to make sure 10% of the deals they look at are from underrepresented founders, that would help move the needle, Goldman Tepper said. They could also ask venture firms to make sure the teams that vet startups are diverse. They could ask the VCs if they use the same metrics on female-led businesses and startups led by white men.
"I think the LPs have been relatively passive because they've made a ton of money," Goldman Tepper said. "There's nothing that requires them to look into what their general partners are doing. Unless and until LPs say, 'You have to invest X dollars into underrepresented founders, go find them,' nobody's going to do it."
Some limited partners are doing this, Goldman Tepper noted. Bank of America, a limited partner of the Artemis Fund, has allocated hundreds of millions of dollars to emerging and underrepresented managers.
"There are other institutions like Bank of America doing the same thing," she said, noting that it's mostly driven by internal policies.
"They understand that women are being left out and it's really when women get into positions of power that they realize that they need to be doing something for half the population," Goldman Tepper said. "Institutions are trying to diversify their C-suite, and when you diversify your C-suite, things start to change. But there's not enough huge institutions that are very diverse."
"What I've realized, after beating my head against the wall, is that we just have to keep at it," Winnett said. "I'll do all the little things that I can do, and as an organization, as many big things as we can do. But it's going to take, I think, decades, if not centuries."
SkyDeck's leaders make sure that every application from a female founder gets a thorough review.
"It's always important to make sure you're checking your biases at the door as much as you can," Winnett said. "And then if they get into SkyDeck, we try to make sure they feel like this is a great place for them, even if there aren't a lot of female founders in the batch, which often there aren't, because that's the way it is right now."
More female VCs will eventually mean more funding to female founders, Winnett said.
"I don't know if it's moved the needle yet, but the hiring of female associates and partners at VC firms has definitely picked up over the last five years," she said. "That will eventually translate into more money for female founders, just because of the nature of having women in the room at that pitch. I don't know how long it will take, but it will happen, eventually."
At least one study shows that diversity in VC teams can lead to better performance. The Harvard Business Review found that VC firms that increased their proportion of female partner hires by 10% had 9.7% more profitable exits.
But having more female VCs and investors won't automatically help, Yudina said.
"Based on my experience and perception, I think female investors face their own socioeconomic pressures," she said. "Being surrounded by male investors, they're a little bit afraid of investing in other female entrepreneurs, because female entrepreneurs are perceived as high risk because of the lack of exits."
Like Goldman Tepper, Yudina sees limited partners such as pensions, endowments and foundations as the key and says that if they mandated VCs to allocate at least 10% of capital to female founders, that would help.
The VC industry reacts well to role models, Yudina said.
"If one well-known pension fund steps up and says, we are not going to provide any more capital to venture funds unless we have proof that over the next three to five years those venture funds will allocate 10% to female founders, that will be followed by the rest of the industry," she said.
Yudina herself broke through the barrier by working harder than her male counterparts. In 2021, her firm raised $26 million in Series B funding led by the Artemis Fund with participation from Northwestern Mutual Future Ventures, Franklin Templeton, AltaIR Capital, Launchpad Capital, OneWay Ventures and Unlock Venture Partners, bringing the firm's total funding to $40 million.
"Women definitely need to work, I think, a hundred times as hard as hard," she said. "No one was giving me any money just based on the pitch deck and idea. I had to invest my own money to get the company off the ground. I had to build the team, and had to build a lot of proof points around this." She also went to VCs that invest in female founders, like Artemis.
VCs are typically not looking for home runs from 100% of the companies they invest in, Yudina pointed out.
"They're only looking for the home runs from 5% to 10% of the companies," she said. "But I think it's very important to give a fair chance to both female founders and male founders of getting to that home-run outcome."
