Updated Feb 9 with quotes from Laura Lenz, partner at OMERS Ventures
Want to do a startup? Better be a man.
According to a Santa Clara University study of 48,000 companies on Crunchbase, a startup-focused business directory, having a Y chromosome is “the primary determining factor for attaining funding.” Being a man, in other words, is more important for startup funding than attending a top university or even having prior startup exits. Plus, contrary to expectations that gender equality is getting closer and closer, funding for female founders — which was already bad — is getting worse.
Almost incredibly worse, in fact.
“Compared with 2019, the first quarter of 2020 saw a decline in the proportion of deals made with female and mixed-gender teams and funding allocated to female teams,” says the report written by primary author Margareta Ackerman as well as Christopher Cassion, Yuhang Qian, and Constant Bossou. “In the third quarter of 2020, funding given to female-only teams dropped to 1.8% with mixed-gender teams receiving just 11.1%.”
Challenges persist after funding: women are 65% less likely to get funded at early stages, according to the report, and 35% less likely to be funded at later stages.
There’s a perception that things are getting better. That perception is wrong, according to one of the authors.
“Gender bias in VC funding for startups is likely worse than you think,” says Ackerman, an AI professor at Santa Clara and CEO of WaveAI.
- 10-15% of startups are founded by women
- 7.13% of startups are female-only
- 80.22% are male-only
- 9.39% are mixed with a male CEO
- 3.26% of startups have mixed-gender teams led by a female CEO
Investors do seem to like mixed-gender teams, at least as long as a man is in charge. Mixed teams with a male CEO raise the most: an average of almost $35 million dollars. Mixed teams with a female CEO raise around $11 million. Male-only teams, however, raise an average of about $22 million. And female-only teams raise the least, on average just around $8-9 million.
“This research is depressing…more so because we’ve been talking about this, and related issues, for more than a decade but it feels like nothing’s changed,” says Laura Lenz, partner at OMERS Ventures.
Male domination is across the board: all 20 industries studied including gaming, data, commerce, apps, health care, advertising, and energy were dominated by male-only teams. And male-only teams receive more funding in 19 out of 20 of the industries.
“Companies with male CEOs receive greater funding across all continents and U.S. startup hubs compared with companies with female CEOs,” the researchers wrote. “Mixed-gender teams perform well with respect to fundraising, often better than male-only teams, when they are led by male-CEOs.”
Oh, and if you’re wondering if it’s better in Europe, think again.
Europe has an even greater preference for male-only teams, according to the study, with those teams raising 93% more than mixed female-led teams, and male-only companies raise six times more money than mixed-gender teams led by men.
And Asia Pacific?
“In Asia-Pacific, male-only companies receive significantly over 37 times more funding than female-only companies,” the study reports.
What’s the solution if we want more gender balance in our startups and tech companies? Recommendations from the authors include VC firms with mandates to invest in female-led companies. That likely requires VC firms hiring women as partners and leaders in their firms.
“Investing in women-led, mixed-gender teams should allow investors to benefit from the performance boost of gender diversity, while helping to correct the long standing bias against female business leaders,” the authors write. “Investors with expertise to lead early stage deals applying such practices can further reap the benefit of early investing, receiving large equity in promising deals.”
“I believe having more female investing Partners is a great first step toward real change, because it eliminates some element of bias from the outset,” she told me via Twitter. “We need to lift each other up. We need to focus on creating succession plans that include women, both within funds and the businesses we back.”
One positive note: she’s seeing some signs of positive change from male VCs, perhaps spurred by changes in work and life caused by the Covid-19 pandemic.
“On a more positive note, I’ve heard from some of my own male colleagues that working from home full time over the last year means they have a renewed appreciation for the dual role that their wives are playing – working full time on a business and taking the lead at home,” Lenz says. “Maybe one of the enduring shifts we will see as a result of the pandemic is a more equitable split between men and women at home. Only time will tell. But in the meantime, I will do my utmost to ensure my door is always open to female founders – and in fact any under-represented founders. I’m a firm believer that being inclusive will make me a better investor and contribute to my ability to drive outsized returns.”