Jan 31, 2022

getty Movement-building can take a long time, which is undoubtedly true when funding female founders. While not all arrows are pointing up, most trends suggest that momentum is building. According to Q4 2021 PitchBook NVCA Venture Monitor : Venture capital invested in private companies surged 98% from 2020 to $329.9 billion in 2021. That's good news for the economy. These companies are the most likely to innovate, increase U.S. competitiveness and productivity, create well-paying jobs, and grow the economy. Though still small in amount—$54.8 billion—there was a whopping 138% rise in venture capital going to private companies with at least one female founder in just one year. They recovered some ground lost since the height of the #MeToo movement in 2017 when the portion of venture capital going to founder teams with women was 18.4%. In 2021, mixed-gender founding teams received 17.3% of venture capital. Funding to all female-founded teams continues to backslide. A pathetic 2.0% or $6.4 billion of venture capital went to these companies in 2021, down from its height of 2.8% in 2009. That's an imbalance that Julie Castro Abrams wants to fix. She's managing partner at How Women Invest, a venture capital fund dedicated to shifting the capital landscape by supporting women-led companies. VCs are sending a message that you need to have a man on your founding team, not because he adds value, but because otherwise, they won't give you the time of day. This unfounded message is costly to women's confidence and VC fund performance. The importance of women GPs cannot be underestimated. "When you have a woman general partner, she is up to two times as likely to invest in female founders than a male GP," said Castro Abrams. There has been growth—from 12.0% in 2019 to 15.3% in 2021, according to PitchBook. However, 15.3% is a far cry from the 25% needed for a tipping point to happen. "When you don't have diversity in [VC] leadership, it's a real risk area," said Abrams. "You're not getting a huge portion of the quality deals that are out there." Research finds that VCs who increased their proportion of female partner hires by 10% averaged a 1.5% improvement in annual fund returns and a nearly 10% increase in profitable exits, writes Waverly Deutsch, a Chicago Booth professor, startup mentor, and investor. Venture firms have increased their diversity initiatives from 24% in 2016 to 43% in 2020. MORE FOR YOU Aligning With Her Values, One Family Office Invests In Diverse Women-Led VC Funds Four out of 10 VCs report that limited partners (LPs)—pension funds and other institutions, foundations, corporate investment arms, family offices, and the high-net-worth individuals who supply the capital that VC funds invest—ask about their diversity strategies . Family offices are estimated to have $6 to $7 trillion in assets under management, according to Family Offices: A Vestige of the Shadow Financial System . Attractive above-market returns have led them to invest in venture capital. Many put their money where their values are— impact investing , and gender-lens investing is a form of impact investing. Molly Gochman started her family office, Stardust Equity, about 15 years ago. She broadened its investment focus to include venture capital about four years ago. "I invest with a gender-equity lens," said Gochman. "Women under-promise and overdeliver...These investments have been really stable and I see them as much less risky." She doesn't just invest in female founders; she invests in services and products that make women's lives easier. "I have more flexibility and discretion in what to invest in and how to prioritize risk and return [compared to VCs or institutional investors]," said Gochman. About 20% of her portfolio catalyzes change and makes a social impact. While 80% is focused on market-rate returns, "We have different ways of measuring them," she said. Unlike institutional investors, such as pension funds, Stardust doesn't have a minimum size for the VC funds it invests in. None of their female GPs have crossed the $100 million thresholds. Gochman's mission is to seed more of these managers and help them scale. "Last year, we committed to 19 funds, many of them being emerging managers in venture capital, primarily women and managers of color," said Helena Hasselmann, managing director of Stardust Equity. The firm also seeded a fund of funds within a large banking institution that also raised capital from other clients. "We are sourcing incredible direct investment opportunities through these emerging managers," said Hasselmann. Most of the funds they invest in are small and don't have the funds to make follow-on investments. Stardust does. Diverse Emerging Fund Managers Can Benefit From Public-Private Partnership As stewards of taxpayer dollars, the SBA has a responsibility and mission to help start, sustain, and grow small businesses, especially those with challenges accessing capital. These challenges may be due to gender, race, ethnicity, industry, geographic location, etc. Through Small Business Investment Corporations (SBICs), the SBA lends low-cost, government-backed capital to licensed private equity fund managers so they can invest in U.S. small businesses and startups. "There's been a tremendous uptick in the number of seed-stage venture funds started by diverse emerging managers," said Bailey DeVries, associate administrator, Office of Investment & Innovation U.S. Small Business Administration. "We [the SBA through SBICs] are poised and well-positioned now to make early-stage and equity investments more broadly. This will mean adjusting the SBIC [rules, regulation, and procedures] which we are actively working on." Because VCs, their LPs, and portfolio companies are not required to report demographic information on their teams, diversity data is limited and inconsistent. The Office of Investment & Innovation has prioritized data collection and building its technology infrastructure to provide granular, disaggregated data that researchers can analyze to understand better the impact of diversity, equity, and inclusion practices on fund and portfolio company performance. What trends are you seeing that will impact female founders' ability to raise venture capital? Follow me on  Twitter  or  LinkedIn . Check out my  website .