From Seed to Success: Broader Backing for Women Entrepreneurs

In 2020, when venture capital fundraising was soaring toward an all-time high, we took a deeper dive into the financing trends for female-founded companies. In the intervening years, companies founded solely by women have secured roughly 2% of all US VC funding (Display). Yet fast forward to today, that figure has dropped to a meager 1.0%¹—largely due to private market headwinds that have hit early-stage venture-backed companies the hardest.²

According to a recent PitchBook-NVCA report, deal value for female-founded companies skews heavily toward later-stage firms, with over 60% of 2024’s US VC deal value concentrated in late-stage and venture growth rounds.³ So while more established female-led companies are securing funding, we continue to see younger companies struggle to survive or even get off the ground (Display).

It’s worth asking, “Why?” What are some of the root causes behind the small percentage of VC dollars invested in women-led companies? This persistent inequity paints a less-than-rosy    future outlook. Clearly, we need to take bold and innovative steps to level the playing field.

Bridging the Gender Gap in Private Investments

Previously, we highlighted data showing that female investors are more likely than their male counterparts to invest in funds that support women-owned businesses. But we also noted that women may not have the same appetite as men when it comes to venture capital or private equity. Studies have long shown a gender gap when investing in these alternative, or private assets. In fact, a 2024 research survey of successful investors worldwide (50% men and 50% women)⁴ revealed that male investors had nearly double the allocation to private investments compared to female investors.

While we have previously explored potential causes—including women’s lack of familiarity with the benefits or their risk-averse nature—evidence suggests otherwise. Many women are, in fact, wholeheartedly embracing private investments as part of their portfolios.⁵ The real barrier seems to be how these products are marketed. The key for attracting more women to this fast-growing asset class lies in making the investments more relatable—that is, explaining them more effectively through clear communication, easy access, and female-focused networking forums.

Scaling Challenges: Why Female Founders Need Male VCs Too

Attracting more women investors into VC funds, particularly those focused on women-owned companies, is just one piece of the puzzle in ensuring the success of female startups. Equally important? Women founders need both female and male General Partners (GPs). While a few female-focused venture capital funds, such as Halogen Ventures and Female Founders Fund, are dedicated to investing in female-founded and led startups, there is still much more that can be done to support this effort.

A 2023 Harvard Business Review article tees up a nuanced challenge: while having more women VCs funding female startups seems beneficial, it can also pose risks for a company’s long-term prospects. In today’s age, women VCs often lack the capacity to continue investing as these companies scale and require more substantial financial backing. As a result, female founders are now finding it advantageous to seek a more diverse team of VCs—including both women and men—from the outset.

The HBR article reveals that early-stage female-founded companies funded solely by only female VCs are less likely to raise a second round of funding due to “attribution bias.”⁶ In other words, potential follow-on VC investors may judge a company’s potential based on the gender of the existing GPs on the cap table. If a female founder is backed by a male VC investor, she is often perceived as more qualified than if she had received financing solely from a female VC. VCs are also reluctant to invest in women if they have previously had a negative experience with a female-led portfolio company. Conversely, even those who have seen positive outcomes with female-founded companies are not necessarily inclined to invest more.⁷

Rewriting the Investment Narrative for Female Founders

Now is the time to rewrite the story and get more VC investors on board to finance female-founded startups. Private assets continue to play a key role in a portfolio, making a convincing case for more women to become LP investors in VC funds, especially those focused on female-founded startups. Research shows that women founders build strong and profitable companies, even in difficult markets. Over the last decade, female-founded companies have consistently exited quicker compared to the overall market.⁸ It is now up to all investors, men and women alike, to recognize and act on this incredible potential.