Female-fronted startups receive less funding than male counterparts, study finds

Female-fronted startups receive less funding than male counterparts, study finds
Source: Business Insider

In January 2019, it was reported by Fortune that companies led by female founders raised far less money than those established by male founders. This is according to a study done by PitchBook, an international venture capital company. Based on data from 2018, the report found that while female-fronted startups saw a jump in funding over 2017, the numbers still paled in comparison to companies headed up by men.

What exactly did the study find?

According to the findings, in 2018, companies that were founded by women accounted for only 2.3% of the total venture capital invested in the year. This means that of the $130 billion invested in startups in 2018, $2.88 billion was spread across 482 female-fronted teams, an increase over 2017’s $1.9 billion. While it represents a jump in dollar amount, the percentage of total venture capital investments dropped from 2.53% in 2017.

The study found that nearly $110 billion, or 84% of all investments, went to all-male companies. Another 12%, just under $16 billion, went to companies with both male and female founders or all-female teams. The remaining amount was awarded to companies of which the founder’s gender couldn’t be determined. This is happening at a time when the number of women-owned businesses is surging compared to the overall number of businesses, with women-owned businesses accounting for 40% of all companies in the United States.

This gender disparity is not solely an issue in the United States. A similar study of European startups found that 93% of the venture capital funds went to all-male fronted companies.

The PitchBook study found that the average venture capital deal for a female-fronted company in 2018 was $5.9 million, while male-fronted companies averaged $17.3 million. The top ten largest investments were all with companies led by men, with Juul, the e-cigarette company, topping the list with a staggering $12.8 billion investment. The highest investment in a female-fronted company was well below the top ten, with $208 million invested in Minted, an online marketplace for artists and designers.

A lack of representation

While the Fortune report suggests there are stylistic reasons women struggle to secure funding, consensus seems to be that the main reason female-fronted startups struggle to raise capital may simply be a lack of representation.

At the top 100 venture capital companies, women only make up 8% of the leadership. While men are willing to invest in women-led companies, it’s rarer when those businesses raising capital are considered gender-neutral. Female-fronted companies that are geared toward female consumers find it easier to find investments.

Angel investor and entrepreneur, Hilton H Augustine, Jr., stated that he feels the underrepresentation is a serious concern. “The progress made (or lack thereof) in the funding of female startups, is in part the same as every other previous underrepresented population,” Augustine said. “Institutional bias is still a material factor! The majority of investors are male, and both consciously and subconsciously tend to prefer doing business (investing in) people they are comfortable with. People who look and think as they do.”

Augustine says the issue goes beyond gender. “Because I’m African American, an underrepresented group, I’ve always been sensitive to these type biases. As such, 20% of the companies I’m currently invested in are female-founded and 50% are ethnic minorities.”

Considerable racial disparity exists in the business world as well. One study found that less than 3% of company founders in the United States are black or Latinx.

The gender wage gap

Disparities between men and women in the professional world are not limited to capital investment. Over the years, multiple reports and studies have been published on gender pay inequality. These reports have addressed the topic from different angles: racial gender gaps, lifetime earnings, generational differences, and differences after having children, among others. It has been stated that in the United States women earn approximately 77 cents for every dollar a man makes.

This 77-cent statistic has been challenged and called a myth, in particular by conservative commentators such as Christina Hoff Sommers, resident scholar at the American Enterprise Institute think tank. Sommers argues that this figure represents the average earnings for all male and female full-time workers, which does not take into account differing careers, positions, or hours worked per week.
Another point of view is that many relevant factors – including expectations that women leave the workforce to be mothers – are rooted in male-biased gender discrimination. Research has also found that even after accounting for a variety of factors, a gender wage gap still exists. In fact, even Sommers has acknowledged this – albeit one of 6.6 cents instead of 23.