May 23, 2022

In 2021, $330. Venture capital is in the billions of dollars, according to Pitchbook, and only 2% of that comes from all-female companies and 15.6% from both female and male teams.

In my opinion, the real figure is around 18%, not 2%, as we have to account for deals with mixed-gender founding teams. Eighteen percent of $330 billion translates into $59 billion, or 25% of all enterprise transactions (eg number of transactions), and these three numbers are the numbers that should be reported.

It’s disrespectful to exclude both female and male founding teams from fundraising data for companies founded by women, period. In doing so, all the success of the fundraising work and the leadership behind it is attributed to the founders who effectively promote gender bias.

In addition to layoffs from companies with mixed founding teams that were hugely successful in 2021 – ThinkAlloy (which rose to unicorn status), CityBlock Health (which raised $600M), and NuBank (which ended the year with a record-breaking IPO) – the right picture shows a sharp change in gender inequality.

At 2%, only one in every 50 corporate dollars is allocated to companies founded by women, while 18% have a difference of one in five corporate dollars. Both indicate that there is still much to be done in this area, but they describe different starting points and, in particular, the area that needs to be covered.

We still have work to do, but we are not pushing the boulder uphill – we are already halfway there.

If our ultimate goal is to understand the current state of opportunities and their growth over time, then we need to measure what John Doerr says is what matters: early-stage funding representation.

Specifically, we need to consider the following metrics: (i) the number of first institutional round VC deals, (ii) the demographics of the founders of these companies, and (iii) the composition of the financiers on an annual cohort basis. The rest is noise.

I’ve put together the most recent numbers, and Pitchbook-NVCA data shows that in 2021, female founders (defined here as including mixed-gender teams) made up 24% of first-time founder-disclosure funding deals. . (Of 4,375 deals, 3,659 had founders identified, and 895 were led by women or either gender.)

From this perspective, one in four financing deals is for the first time associated with a company founded by a woman, a picture very different from the outrageous story of the 2% that circulates in the industry. Again, we still have work to do, but we’re not pushing the boulder uphill—we’re already halfway there.

To put the numbers in context, women-founded companies accounted for about 24% of annual first-funding transactions, which we know have been mixed teams since 2017. From 2012 to 2016, that number was around 20%, and from mid-2010 to the end, that number was in the mid-teens. This means first-finance deals for companies with female founders have grown faster than typical first-finance deals.

The data supports this as the number of female founders and overall first funding growth was 1.4x from 2016 to 2021, 1.4x to 1.1x from 2011 to 2016 and 3.8x to 2.2x from 2006 compared from 1.6x. Based on a five-year Compound Annual Growth Rate (CAGR), the number of female founders and the total first funding market for 2015-2020 are 6.2% and 2.5%, respectively.

The slow growth in funding for first-time venture capital deals over the past 15 years is perhaps most surprising as there has been a significant increase in the number of new fund managers, especially those with investment mandates for female founders, female VCs, and pledgers. Founder support companies have been underrepresented in recent years.

This raises questions about the effectiveness of reporting and related support initiatives.

We need to be better accountable to financiers

What are the results of all the leading funds in 2021 with different founder experiences? Dont clear. How do new fund managers compare to established companies? Dont clear.

If I am a new wealthy person interested in becoming a Limited Liability Partner (LP) in a fund with the best first money track record among female founders, black founders, immigrant founders, or other areas of intimacy…on the basis of transaction counting everything ranks? Dont clear.

Is it true that female investors are making more seed funding deals in companies founded by women? Dont clear. What percentage of new fund managers invest in pre-seed or seed — which is the bottleneck of opportunity — compared to series A and B? Dont clear.

Without accountability from the funding side that matches the rigor of the founder’s analysis, outreach does not provide real accountability. Distinguish between those in charge and behind, and vet first writers—those who actually sponsor opportunities—from others who support women in different definitions. It’s worth it, because comparing funds and investors by the number of transactions allows all participants in the ecosystem to trade more efficiently depending on their preferences.

In addition, the allocation of capital to female founders should be divided into racial, socio-economic and educational subgroups, as women also have prejudices. homosexuality, which supports the assumption that more female investors will lead to more female founders, not only crosses gender boundaries, but also affects genealogical, sociocultural, behavioral, and interpersonal characteristics.

The homogenous selection of female founders, the issues discussed and individual development, and the proposed solutions to inequalities so far show that this is true. Also, for many individuals, the notion of downward seepage seems to be insufficient.

While there are limits to how detailed we can be with firm-reported data, the bottom line remains the same: you can’t hold people accountable whose records are unclear, and accountability brings out the best in people.

Problem with transaction amount

Aggregate numbers have many confounding factors that make them meaningless statistics.

I will explain this with the example of edtech, which had another blockbuster. However, the fact remains that Guild Education (founded by women) raised $150 million in Series E, Handshake (founded by men) raised $80 million in Series E, and Outschool (founded by men) raised $185 million in Series C and D. 2021 tells us nothing about current access to capital for underrepresented founders or gender differences in capital distribution.

This is because all three of these companies made $415 million in 2021, but their fundraising success today is the result of being given the opportunity six or seven years ago and consistently delivering results. .

Essentially, annual deal value is a lagging metric, skewed by late-stage funding in companies established five to ten years ago, and prone to survival bias because of the impact on funding performance after the first round of funding. dependent.

In addition, transaction value is not comparable for several reasons. Fundraising figures include the concentration of founders in different industries, the capital intensity of those industries, the distribution of companies by phase, and the management’s business plan (for example, how much runway to use, how much to optimize for growth or profitability, etc.).

All this makes the figures less significant than they seem at first glance, and ineffective for comparison at the gender level.

For example, Cruise, an autonomous vehicle (AV) company founded by a man, raised $3 billion in 2021, about 1% of venture capital dollars in a year. That transaction alone was worth over $2.6 billion from the female founders who signed over 135 deals in digital health, an industry that has experienced a historic year.

There is work to be done, but pretending that the total cost of a deal is the measure that matters is misconduct. If the goal is real accountability, the ecosystem will be better served with a more rigorous progress scorecard that focuses on first-funded deals based on the number of deals, subgrouping female founders, and controlling fund participation.

Figure 1: The number of development-first investment by female founders is based on the change in the increase in the total number of transactions with female founders (including mixed teams) over the years indicated. For 2016-2021, this is 895/570 for 1.6x. From 2011 to 2016 it’s 570/395 for 1.4x. For 2006-2011, this is 579/151 for 3.8x. The overall growth rate of initial funding is obtained using the change in growth of the total number of deals where the gender of the founder was specified – the total number of deals (total) minus the number of deals with an unknown gender composition of the founding team (not published) – mentioned over the years. For 2016-2021, this is 3659/2662 for 1.4x. From 2011 to 2016 it’s 2662/2433 for 1.1x. For 2006-2011, this is 2917/1325 for 2.2x.
2: These numbers were obtained using the CAGR formula for the total number of deals for female founders (including mixed teams) and the number of deals with an unknown gender composition of the founding team by subtracting the total number of deals (total). were (unknown). For 2015-2020, the baseline for counting female founders is 771 and 570, and the baseline for counting total number of founders is 3,017 and 2,662.

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