As International Women’s Day comes to an end, society is taking time to celebrate the talent and resilience of women. However, ongoing hurdles prevent them from achieving their goals and impacting the world. This is certainly true in venture capital, where great founders are ignored because of their background or pitch. As a result, female founders remain underrepresented. Compared to men, startups with entirely female founders received just 2.8% of VC funding in 2023, the lowest amount in four years. Rather than insisting on quotas, venture capital firms should simply invest in talented founders. By doing so, you will naturally cultivate a diversified portfolio that delivers attractive returns. I urge analysts, fund managers, and partners to dismantle bias against female founders by going beyond traditional networks and traditional investment strategies to select founders with the highest potential.
The World Economic Forum’s 2022 Global Gender Gap Report shows that it will take at least 132 years to achieve gender equality. Old stereotypes such as “men are in charge and women take care” and “men assume leadership” dominate the corporate world. As a result, despite the benefits of investing in women-led companies, women generally end up with less capital than male teams.
Data proves that female entrepreneurs often outperform male entrepreneurs by building businesses with higher profits and job creation. Despite this, female founders encounter even more pushback during the pitching and fundraising process. This may be because women utilize unconventional approaches that are not often considered, such as cold inbound pitches. While most venture capitalists prefer traditional networks (men often introduce men), investors can tap into a richer and more diverse pool of ideas and founders by stepping outside their comfort zone. Masu. They are missing out on trillions of dollars of opportunity in innovation and growth because they are reluctant to take chances on unconventional talent and proponents.
Only 8.6% of venture capitalists are women. In a male-dominated field, women are labeled as a “risky” investment choice simply because they have fewer opportunities to showcase their talents than men. In one study, 65% of female founders were explicitly told that they would raise more money if they were a man. This biased mindset can come from both female and male VC professionals and is a major barrier preventing female founders from accessing capital.
In recent years, female VCs have been trying to close the investment gap by establishing women-only funds. Women supporting women sounds like a noble cause that greatly increases the chances of female-founded startups getting off the ground. However, research shows that receiving funding exclusively from female VCs is costly. Women-owned startups whose initial investment round was funded solely by female venture capitalists were two times less likely to complete a second round.
These findings are caused partly by conscious bias against women, but also partly by attribution bias. When sexism is not the cause, humans assume that a person’s gender or background has something to do with the outcome of the situation. Therefore, this study revealed that the same pitch told by a man or a woman is perceived differently depending on the gender of the financial professional. When a “female” entrepreneur received funding from a male VC, participants believed she was competent and the quality of her pitch was high. Participants considered the opposite when the funder was a woman.
It’s clear that the funding gap between male and female entrepreneurs is exacerbated by gender stereotypes and human preferences for people who look like us. To ultimately eliminate the biases that hinder women’s success, industry professionals at all levels must leverage better bias-aware practices. Women don’t need special treatment, but venture capitalists are concerned about how marginalized people, women, and many other groups, including people of color, are viewed differently in the same environment as men. You need to consider whether
Venture capitalists need to look outside their networks and start seeing diversity not as a quota to be met, but as a byproduct of finding the best founders. Allocations shouldn’t be necessary when companies invest in promising founders, but most funds fail to do so because there is too much bias to consider “non-traditional” founders. In these cases, quotas are useful because they force venture capitalists to consider the skills that the founder brings to the table.
By diversifying their investments and advocating for a reassessment of “red flags” in founder evaluations, companies can have a transformative impact on society. Rather than excluding founders who take an unconventional path to entrepreneurship, venture capitalists will recognize the innovative perspectives and solutions these people often have. Their contributions will enrich the ecosystem with diversity of thought and practice. Supporting women and other marginalized entrepreneurs will create innovative products and services that address underserved markets and overlooked consumers. Some of the women-led companies that have reached her $1 billion valuation include Bumble, CreditKarma, 23andMe, and Proactiv.
With International Women’s Day 2024 focused on accelerating the progress of women around the world, venture capitalists have a new opportunity to start investing in women. Not only because it’s the right thing to do, but because we have great founders from all walks of life.
