Lack of female-led “unicorns” shows the need for change in the venture capital world

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Earlier this year, venture capitalist Aileen Lee, who coined the term “unicorn” to describe privately held startups worth $1 billion or more, released a report reflecting on the growing trend since the name Changes in the 10 years since its creation.

Of course, a lot has changed – over the past decade, the number of U.S. unicorns has increased from 39 to 532, while one prominent startup, Meta, has reached a market capitalization of $1.3 trillion. But one thing hasn't changed, Lee said: The company's lack of female founders.

While progress is slow, it's still at a low level – only 14% of unicorns have female co-founders, compared with 5% a decade ago. Only 5% of companies have a female founding CEO, compared with zero during the same period. As Lee, founder of Paul Aalto-based venture capital firm Cowboy Ventures, points out: “There are more founders named Michael, David and Andrew than there are female unicorn CEOs.”

This imbalance is reflected in investment flows. The share of funding received by companies with only female founders fell from 2.5% of all venture funding in 2013 to 2% last year, according to data provider PitchBook.

Things are even better for those with at least one female co-founder. PitchBook said their share of venture capital deals by value rose from 16% in 2013 to an all-time high of 27.8% last year. However, this figure is somewhat affected by the size of OpenAI’s $10 billion funding round, which has two female co-founders. Excluding the company led by Sam Altman, the share fell to 22.8%.

There is an obvious factor behind this imbalance. According to data from nonprofits All Raise and Crunchbase, 85% of writers of venture capital checks are men. Among investment partners, women are also significantly less likely to represent their venture capital firms on portfolio company boards or to serve on a firm's investment committee, notes Deloitte's Heather Gates. The lack of female representation can lead to explicit bias. Alison Greenberg, co-founder of virtual maternity care provider Ruth Health, said a male investor once told her “pregnancy is a niche market” and chose not to invest.

Such decisions can mean missed opportunities. A recent Boston Consulting Group survey of 350 startups found that businesses founded by women ultimately bring in more revenue than those founded by men, bringing in twice as much revenue per dollar invested. many. PitchBook data shows that female founders burn cash slower and exit faster than male founders.

A BCG survey sheds some light on why female entrepreneurs are short on capital. “First, female founders and their presentations are more likely to be challenged and resisted than male founders. For example, more women report being asked to confirm they understand basic technical knowledge during presentations. Often, investors just assume that female founders This knowledge is not available,” the report said. BCG adds that if a potential funder comments negatively about some aspect of a woman's advocacy, she is more likely than a man to accept legitimate feedback rather than raise objections.

BCG says male founders are more likely to make bold predictions and assumptions in their pitches. “One investor told us, ‘Men often over-promote and over-sell.’ In contrast, women are often more conservative in their forecasts and may simply ask for less than men,” the report said. “In general, women often come up with ideas that they have experience with,” said one investor. “For men, this is less true.”

Many male investors have little understanding of the products and services women-founded businesses market to other women. “This provides arbitrage opportunities,” said Andrea Turner Moffitt, founder of Future Heights Ventures and co-founder of another venture capital firm, Plum Alley. One example is women's health care. “Less than 2% of venture capital dollars are invested in women's health. It's a mismatch,” said Naseem Sayani, co-founder of Emmeline Ventures.

Allison Baum Gates, general partner at SemperVirens Venture Capital, said consumer-focused companies also tend to provide better avenues for female founders, who can easily capitalize on consumer experiences .

One of the hopes for female entrepreneurs is to increase the representation of women in venture capital firms. Deloitte's Gates said women will make up 35% of entry-level investment positions by 2022, up from 25% in 2016. As they advance through the ranks, they may be more inclined to support female-led future unicorns.

anna.mutoh@ft.com