“We’re tired of trying to break into a network that wasn’t built for us, so we’re just building our own. Those seeds are starting to bear fruit.”
Sruti Bhara, Former CEO of All Raise
Venture capital (VC) has been the fuel behind some of modern society’s most disruptive innovations, funding vaccines, smartphones, and search engines. Today, it’s bigger than ever.
According to Crunchbase, global venture investment totaled $643 billion in 2021, nearly double the total of the year prior. And venture capitalists don’t just provide a quick injection of financial support: often, they also act as consultants and consiglieri to burgeoning startup founders, in a working relationship that can last around a decade.
For founders of a modern startup, securing access to venture capital is an increasingly important step, one with potentially life-changing ramifications. But accessing venture capital is still harder to do as a female or non-binary founder, with conscious and unconscious biases in the VC community acting as potential obstacles.
To learn more about the state of play for female founders seeking venture capital and the people and organizations who are actively working to improve it, read on.
Sruti Bharat is the former CEO of All Raise, a nonprofit dedicated to achieving gender parity among founders and funders in tech. She previously served as director of venture programs and strategy for All Raise.
Bharat graduated from the University of California, Berkeley in 2012 with a BS in industrial engineering, and has an MBA from Kellogg School of Management. She is also the co-founder of FutureMap, which helps first-generation college graduates navigate their transition to the workforce. Bharat is passionate about coaching and elevating others to achieve their potential. You can follow her on Twitter.
In 2021, venture capital broke practically every record on the books. In the first half of that year alone, female-founded startups raised some $25 billion—more than the total amount raised by female-founded startups in any year prior. This was a year that saw several major wins for VC funds that focus on female and nonbinary founders: Female Founders Fund raised $57 million; BBG Ventures raised $50 million; and Rethink Impact raised $182 million.
“The venture capital ecosystem is beginning to recognize the $4 trillion economic opportunity that comes with more diversity,” Bharat says. “We are optimistic that firms will continue to prioritize recruiting female and non-binary investors going forward.”
The business case for diversity is clear, with diverse leaders making for more profitable companies. But despite the staggering inflow of venture capital in 2021, some deep inequalities persisted: on a percentage basis, the amount of VC investment going to female founders was actually at the lowest level it’d been in five years.
“It’s frustrating to hear about a record-setting year of funding when the lived experience of so many is that things haven’t changed quickly enough,” Bharat says.
One of the most pervasive biases in society is also pervasive in venture capital: individuals have a tendency to sympathize with (and gravitate towards) those who most resemble them. And the VC community is still, in large part, a boys’ club.
“While progress has been made, 86 percent of those making investing decisions in the VC community are male, and they’re prone to the well-known phenomenon of homophily, or pattern-matching,” Bharat says. “Many women tell us that they get better traction alongside male co-founders for this unfortunate reason.”
According to data from Pitchbook, teams composed of both male and female cofounders are significantly more successful at securing funding than female-only teams:15.6 percent of funding went to the former in 2021, and only 2 percent to the latter.
Furthermore, while the percentage of funding going to mixed-gender founder teams has steadily increased almost every year since 2008, effectively tripling, the percentage of funding for female-only teams has been relatively flat over the same time period, ranging between 1.7 and 2.8 percent.
A confluence of different biases, both large and small, can present themselves to women and nonbinary founders during the pitching process. A 2018 study performed by Harvard researchers found that investors tended to ask men about their potential wins, and women about their potential losses.
And many female founders still face what’s referred to as the double bind, where they’re expected to be bold and assertive, but are also penalized for “unfeminine” behavior (the type which is celebrated in their male peers).
“Another area of bias, one that I think is the most subtle, comes from the actual sourcing and diligence process,” Bharat says. “The best deals go viral in VC circles because of FOMO (fear of missing out). If a deal is seen as super competitive, valuations are driven up, and more VCs will fight for a spot on the cap table. But how does a deal acquire that sense of FOMO? It comes back to the founder being in the right circles long before they ever need to fundraise. Women need advocates and allies who will vouch for them even when they’re not in the room, which promotes a sense of scarcity and competition for VCs.”
Female founders don’t have to do it alone. In addition to female-focused VC funds like BBG and Female Founders Fund, organizations like All Raise exist to support female and non-binary founders in their quest for VC funding.
And while it’s not particularly fair that women should have to adjust their own behaviors in order to compensate for the biases of investors, there are steps that can be taken to increase their chances of securing VC investment.
“We’ve heard from our community of investors that a lot of fundraising boils down to knowing how to respond to hard questions and establishing a good pitch,” Bharat says. “Those things are teachable.”
To this end, All Raise has established “office hours” where female and non-binary founders can receive feedback on their pitches. They also host a virtual bootcamp that coaches women through their first institutional rounds. These events also create a sense of community and help female founders grow a professional network in an organic way. And in business, a network can pay handsome dividends, including referrals to talent, access to mentors, and introductions to potential investors.
“My advice to any female or non-binary founder is to seek inspiration, learn the language quickly, and build community,” Bharat says. “Most importantly, foster relationships with others who can support you in this journey, because in this world, your network will end up being your biggest success factor.”
One of All Raise’s goals since its inception in 2018 has been to increase the number of women in venture capital who have the power to authorize investments. The thesis was and is simple: when more women control the money, more women get funded.
Today, roughly two-thirds of VC funds don’t have a single female investor. But things are improving: in 2018, 9 percent of decision-making VCs were female; in 2021, the figure was over 14 percent. Notably, 84 percent of the female and non-binary check-writers in the American VC ecosystem are part of the All Raise community.
“There is still so much work that needs to be done,” Bharat says. “But we have made good progress, and what we have seen is that the industry is going in the right direction.”
Despite the challenges that female and non-binary founders face, there are more success stories than ever before. Today’s female founders aspiring to break into the VC world can look to Tia Health’s $100 million Series B, Insitro’s $400 million Series C, and Maven Clinic’s $110 million Series D.
And those who pave the way, in spite of enormous obstacles, often reach back to hold the door open for others. A new ecosystem is being formed and today’s female founders can get in on the ground floor.
“We’re tired of trying to break into a network that wasn’t built for us, so we’re just building our own,” Bharat says. “Those seeds are starting to bear fruit.”