December 23, 2019

Not Done Yet: Still Work to Do on Gender Parity in VC in 2020

Not Done Yet: Still Work to Do on Gender Parity in VC in 2020

This article was originally published by Daria Solovieva on Karma.

Earlier this month, I saw something I’ve never encountered before in years of attending startup events: three out of four founders pitching their startups at the Food Future Co. demo day in New York were women.

While this was among the visible signs of progress, the rise of women in venture capital and broader financial inclusion of women has only just begun.

Companies led by female founders received 2.8% of the US funding in 2019, PitchBook data shows. That was up from 2.2% last year.

“Startups, founders and investors are acting to address gender inequality and inequity because they are increasingly recognizing that this imbalance is affecting the character and potential of our economy,” Ami Dalal, managing director of FINCA Ventures, told Karma. “I am confident we will see more ideas, businesses and investment with an active gender lens.”

For investors like Dalal, investing in more diverse founding teams means backing more profitable companies.

Initiatives like Zebras Unite that include both startups and investors aim to build companies that “balance both profit and purpose.” Dalal notes that companies that are started by women and other underrepresented founders often translate into “profitable business models that are more equitable and that even solve meaningful social problems.”

Slow Progress

Certainly there is a gradual increase in the total amount of capital allocated to female founders. In 2018, the total number of VC investments in startups led by women was 3,477, compared to 823 in 2010.

This year is on pace to come close to that mark, according to a recent PitchBook report on the state of women in the venture capital world written in collaboration with All Raise and funded by Microsoft and Goldman Sachs. All Raise is a non-profit organization launched by investors in 2017 with a goal of increasing the amount of funding directed to female founders.

The rise of and increasing prominence of female investors are facilitating changes. The report highlights that female-founded teams are raising funds at higher average and median valuations compared with all-male founder teams.

Enduring Challenges

Despite this incremental progress, enduring under-representation of women is out of sync with global demographics and market data for most products being launched and funded by VC dollars.

“Considering that women make up half of the world’s population and an even larger percentage of buying power, this underrepresentation is a problem not only for talented female entrepreneurs, but also for an industry that relies on scalable ideas to reach its potential,” the report noted.

The need for diverse founding teams and investors is more urgent than ever, if we are ever going to try to boost economic participation on a global scale.

The World Economic Forum’s 2020 report estimates the broader gender gap across all industries will take 257 years to close, and that’s a slide from the estimate of 202 years in last year’s report.

Forget millennials or generation Z: daughters born in 2020 still won’t even come close to gender parity in their lifetimes and it’s not likely to happen even in their daughter’s lifetimes. The way WEF looks at it, gender parity looks at more gender equality factors that include economic participation, education level, access to health and political engagement.

As consumers, women are held back in many parts of the world: there are 72 countries where women can’t opening bank accounts or obtaining credit, WEF notes.

So as investors, startups and media covering these signs of progress, let’s not forget the bigger picture.

There is no magic cure for improving diversity, but continuing to question assumptions and entrenched boys-club practices and mentality is a good resolution for 2020.

“This sounds simplistic, but we should all be questioning all of our assumptions,” Deb Kilpatrick, CEO of Evidation Health, said in the report. “We should all examine our business practices, investment trends or hiring decisions, and try to objectively assess if there’s any hidden bias in them wherever that’s possible.”

While reports and data highlight funding gaps, not enough people take the information to heart and act on it.

“The investment communities as a whole understand the problem, but few are actively being part of the solution,” Bonnie Lau, CEO of Yoconut Dairy Free, told Karma. “Unconscious bias in deal-filtering and funding decisions still contributes to the abhorrent systematic funding gap — we need more VC/investment that actually goes to women-led companies.”

Lau was among the female founders pitching at the Food Future Co. demo day. And since diversity-focused investors are relatively recent entrants, they have more pressure to perform.

“Let’s not forget that the few new women-focused funds are still new and in the startup phase, meaning they too need to prove their track records and have a more immediate need to generate a higher return,” she says. “Thus they are likely to be more risk-averse than more established, larger funds and look for fast-growing unicorns.”