Payal Kadakia is part of a small but growing cadre of entrepreneurs: women CEOs or founders whose companies’ valuations are in the hundreds of millions or approaching $1 billion.
The 34-year-old co-founder and former chief executive of exercise-membership company ClassPass has raised nearly $140 million in venture funding from such firms as Temasek Holdings, GV, Acequia Capital and General Catalyst, and her company is currently valued at $470 million.
“There’s not many of us, and we’re all close,” she says of her fellow female founders who lead venture-backed companies with similar valuations. “Ten years ago, none of us had role models to look at.”
Now, she says, “I believe things are changing.”
They are changing, an extensive data analysis by VCJ shows, but painfully slowly. Data and observers indicate that the tide may be turning as entrepreneurs and investors increasingly acknowledge the disparity between funding rounds raised by women and those raised by men. And they’re searching for ways to address it.
However, the hurdles toward something like parity for women entrepreneurs remain high and numerous.
VC funding to women-led companies gradually rises
In 1999, any given venture deal had a less than 1-in-20 chance of going to a company with a woman on its executive team. Now, roughly 1 in 6 venture deals is with a company led or founded by a woman. That’s according to VCJ’s analysis of more than 1,800 venture deals from 2016 through early August. Our analysis focused on deals made by the 25 most active venture firms in terms of deal count, based on data from Thomson Reuters or provided by the firms themselves.
Other key findings from our analysis:
- Companies with female CEOs or co-founders have closed more than 16 percent of all venture deals but received less than 15 percent of disclosed equity in 2017.
- Companies with male founders or CEOs raise on average nearly $5 million more than companies with female founders or CEOs.
- Venture firms with a higher percentage of female investors are more likely to invest in women-led companies, and conversely,
- Firms with few or no women investors are least likely to back female founders.
- And within sectors in which the VC industry most commonly invests, like software publishing and biotech research, it disproportionately favors companies led by men by more than 2 to 1.
Our study and findings come as the power and gender dynamics in Silicon Valley, and particularly within the venture community, have come under serious scrutiny after a series of sexual-harassment allegations and resignations this summer. More female founders are speaking openly about their experiences of discrimination, prompting greater — and more open and direct — conversation in the venture sector. Just this week, Melinda Gates shined a spotlight on the issue, saying in a column on the tech news site Recode that she wants to close the gender gap in venture capital.
“You have to understand the social impacts of gender interactions in order to create real change,” said Christine Herron, co-leader of Intel Capital’s Diversity Fund. “It doesn’t matter what you put out on a mission statement. What matters day-to-day — in the trenches, doing the work — is, do you have people who find the other gender comfortable to work with?”
Overall, venture funding to companies with female CEOs or co-founders has increased in 2017 from 2016, both in deal count and disclosed equity invested.
And the share of all equity raised by female founders and leaders has nearly doubled this year from 2016, although women still raise less equity than their male peers do.
Thus far in 2017, about a sixth (16.3 percent) of venture deals have gone to companies with women CEOs or co-founders, and those companies received a seventh (14.6 percent) of all equity invested, according to VCJ’s analysis of the top 25 most active venture investors.
The deal-count proportion ticked up from a year earlier, when 15.3 percent of venture deals went to companies that had women CEOs or co-founders. But invested equity doubled: Women-led companies netted just 7.4 percent of the total disclosed equity invested in 2016.
Closing the gap?
VCJ analyzed 1,844 venture deals with U.S.-based companies made by the top 25 most active venture firms from Jan. 1, 2016, through early August 2017.
The deals represent just a slice of all venture activity in the United States, with Thomson Reuters reporting nearly 12,000 venture deals in 2016 alone.
The data includes 1,195 companies that received venture funding in 2016 across all stages, from seed to late-stage. VCJ determined that 183 of those companies, or 15.3 percent, have a female CEO or co-founder, 985 do not and 27 did not publicly disclose the gender of their CEOs and founders.
Not all deals disclosed information on the amount of equity invested. But among those that did, female-led companies across all sectors raised an average of $9.72 million per round in 2016, less than half the $22.04 million their male counterparts raised.
In 2017, the gap in equity raised between male- and female-led companies appears to be closing. Thus far this year, those 25 most active VC firms reported investing in 649 companies as of early August, 106 of which (16.3 percent) have a female CEO or co-founder, while 526 do not, and 17 do not make that information publicly available.
Companies led by exclusively male teams still raise nearly $5 million more on average across all stages of funding. Among the companies that disclosed the amount of equity they’ve raised, those with female leaders have raised an average of $26.94 million in 2017, while male-led companies raised $31.66 million.
Average equity to companies with female CEOs or co-founders vs. those with male CEOs and co-founders
The rise in average equity raised by female-led companies partly reflects more such companies raising bigger sums, and that in turn is part of the broader trend of companies staying private longer. Among more than 1,800 deals analyzed, eight companies with female CEOs or co-founders have raised $50 million or more so far in 2017, while in 2016 just one such company did so.
Download Table: Women-led companies to raise $50 mln or more
VCJ reached out to all 25 firms to confirm the Thomson Reuters data. The majority did not respond to requests for comment, and some said they do not internally track information on the gender of their portfolio companies’ CEOs and co-founders. A few firms provided their own internal numbers or relevant information, which VCJ included in the analysis.
The numbers indicate that funding to women-led companies has crawled upward in recent years. In 1999, less than 5 percent of companies receiving venture funding had a woman on their executive team, a study by Babson College’s Diana Project shows. From 2011 to 2013, according to that study, that number had risen to roughly 15 percent and was little changed, at 15.3 percent, in 2016, according to VCJ’s analysis.
Whether this year’s increase signals a permanent shift toward funding women-led companies is unclear. The increase in equity for women-led companies is unlikely to have resulted from recent allegations of sexual harassment in the venture business, however, since most of the 2017 data stem from deals prior to when the allegations came to light.
Rather, the slow gains likely correlate to increasing awareness and acknowledgement of the gender imbalance in the venture sector.
“The issue of under-representation of minorities in venture has been around as long as venture,” said Maha Ibrahim, a general partner at Canaan Partners. But she says the conversation did not break out into the mainstream until Ellen Pao sued Kleiner Perkins Caufield & Byers for gender discrimination (a court case that she lost in 2015 when a jury ruled in favor of the firm).
In addition, social media has enabled conversations that had previously been isolated to break into public view, Ibrahim said. Now, founders and entrepreneurs have begun to pressure venture firms to invest from more diverse networks.
“You saw the conversations and discussions and the vitriol happening, and it allowed the venture firms to see that with their own eyes,” Ibrahim said. As firms became more aware of the imbalance, they became more likely to invest in companies they might have previously overlooked.
Pao, a former partner at Kleiner Perkins, recently published an excerpt of her upcoming book recounting her experience at the firm. She did not respond to VCJ’s request for comment.
While the number of female entrepreneurs who get venture funding has increased in 2017, the overall picture isn’t pretty.
The venture capital industry still disproportionately underfunds women-led companies when compared with the number of small-business owners nationwide who are women. More than 45 percent of U.S. small businesses have a female equal or majority owner, according to a report released in May by the U.S. Small Business Administration. That’s nearly three times the percentage of venture deals that went to women-led companies in 2017.
And within the industry sectors that most often receive venture funding, deal count lags behind the number of U.S. small companies owned by women, according to data from the SBA, which tracks small business ownership by the North American Industry Classification System, a series of codes that correspond to industries and sub-industries.
Of the top 10 industries that received all venture funding in 2017, nine are grouped in the tech industry by the SBA, and fall under descriptions like “software publishers,” “internet publishing and broadcasting and web search portals,” “research and development in biotechnology,” and “electromedical and electrotherapeutic apparatus manufacturing.”
Within those nine industries, just under 40 percent of small businesses have either a majority or equal owner who is a woman, according to data provided by Michael McManus, a regulatory economist at the SBA.
In one industry — “all other personal services,” which is the fourth most-common industry classification for companies that received venture funding this year — 63 percent of small businesses have a majority or equal owner who is a woman, according to the SBA data.
The pools of women-owned small businesses and women-led or founded companies seeking venture capital may not overlap perfectly. But when compared with their male counterparts, women-led companies appear far less likely to receive venture funding.
And the outlook for women-led companies is even less promising when comparing deal count to the amount of equity raised. Although they represented 15.31 percent of deals closed, companies with a female CEO or co-founder received a far smaller slice of the equity pie in 2016: just 7.37 percent, according to VCJ’s analysis.
This year, that disparity is smaller: Women-led companies represented 16.33 percent of deals closed, and received 14.59 percent of equity raised.
Number of investments to women-led companies, 2016 (below top) vs. 2017 (below bottom) by the 25 most active venture investors:
Equity invested into women-led companies, 2016 (below top) vs. 2017 (below bottom) by the 25 most active venture investors:
“There is a discrepancy between the dollars that go to a diverse team’s Series A vs. a non-diverse team’s Series A,” said Herron, of Intel’s Diversity Fund. “How much of that is market driven or culturally driven?”
She pointed to anecdotes illustrating that women executives learn to make do with less funding or investors being less willing to make a risky investment on women-led companies as possible reasons for the disparity.
“Do [women executives] do the same with less capital?” asked Herron. “Or do they not get as many of these people falling over themselves throwing money at you? And how much of that is us [investors] not taking a fair look?”
And the cause of the disparity may be a chicken-and-egg scenario. It’s unclear whether venture firms are less likely to fund women-led companies that pitch to them, or whether those companies are less likely seek venture funding in the first place. At Andreessen Horowitz, for example, women who pitch to the firm are slightly more likely to get funded at 2.7 percent than their male peers, 2.4 percent of whom pitch and receive funding, according to data provided by a spokesperson for the firm.
Female VCs more likely to back female entrepreneurs
Among the firms and deals VCJ analyzed, a correlation emerged: Firms with a higher percentage of female investors are often more likely to invest in women-led companies. The converse was largely true for venture firms with few or no women investors. Among the 25 firms VCJ analyzed, just over 13 percent of investing partners on average are women.
Canaan Partners, Ben Franklin Technology Partners Southeastern PA, Innovation Works, Norwest Venture Partners and DreamIt Ventures closed the most deals with women-led companies, with more than 20 percent of each firm’s deals going to such companies, according to VCJ’s analysis. At those five firms, an average of nearly 19 percent of partners are women.
In contrast, firms that invested in the fewest women-led companies often have a smaller percentage of women on their investment teams. Bessemer Venture Partners, General Catalyst Partners, Accel Partners, U.S. Venture Partners, and Andreessen Horowitz closed the fewest deals with women-led companies compared to their peers, according to VCJ’s analysis. At those five firms, less than 9 percent of deals are with women-led companies and 3.2 percent of partners on average are women. General Catalyst, Accel and Andreessen Horowitz have no female investing partners.
To be sure, the correlation is not 1 to 1, and some firms with a greater share of female investing partners invested in fewer women-led companies than average, and vice-versa.
10 select venture firms by deal count with women-led companies and female partners
Download Table: Top 25 firms by deal count and women partners
Bessemer, General Catalyst, and Accel did not respond to requests for comment. U.S. Venture Partners provided its internal numbers to VCJ. Andreessen Horowitz declined to comment on VCJ’s analysis, but pointed out that 2.7 percent of women who pitch to the firm are funded, while 2.4 percent of men who pitch are funded.
Female investors say they’ve noticed a correlation between the makeup of a firm’s investment team and the percentage of companies they invest in that are led by women. “If you have an investment team that’s at least 30 percent female for more of a gender balance, you are going to see some very major strides on the portfolio side,” Intel Capital’s Herron said.
That doesn’t mean that only female VCs are investing in women-led companies, she noted, but that the entire investment team — men and women — is more likely to source deals with women-led companies.
Ibrahim, of Canaan Partners, said her firm’s higher-than-average rate of investing in women-led companies resulted organically from the fact that nearly a quarter of its partners and general partners are women.
“It was nothing intentional. We did not go into this and say we need to have more female founders, nor did we say we need to market ourselves to a more diverse set of entrepreneurs,” she said. “We wanted our investor pool to be representative of what we feel is the true pool of entrepreneurs.”
And despite the slow increase in funding to women-led companies, Kadakia, of ClassPass, sees herself and her fellow female entrepreneurs as breaking new ground for women founders.
“You can’t compare us yet to a $50 billion company because there’s not yet a $50 billion female-founded company,” she said. “It’s the job of the 10 or 15 of us women in this range to build that.”
“We have to think of ourselves like the first 10 males who did that a hundred years ago, and I want to celebrate that.”
And with an entrepreneur’s determination, Kadakia doesn’t focus on lower odds or bias in the VC sector.
“One of the things about being an entrepreneur is you face adversity in every shape and form, and it’s your job to overcome it, whether it’s your ethnicity or you’re female,” she said. “I’ll go through whatever I need to to get what I need to get done.”
Postscript: Our Methodology
VCJ analyzed all venture deals reported by the top 25 most active venture investors in 2016, and examined those same 25 firms and deals in 2017 through Aug. 3, as reported by Thomson Reuters. We looked at 1,844 deals across all stages, from seed to late stage, as well as follow-on investments, and limited our scope to deals with U.S.-based companies.
We reached out to all 25 firms to confirm the data. Most did not return our request for comment, and some said they do not internally track the gender of their portfolios CEOs and founders.
A few firms provided relevant or clarifying information. When a firm provided its own internal numbers, we used those in our analysis. Some firms provided only the number of deals they made with women-led companies, but not the total number of deals they made during that same time frame. In those instances, we included only the Thomson Reuters data in the overall analysis and noted the additional information supplied by the firms in this spreadsheet: Top 25 firms by deal count and women partners.
When determining how many partners at each firm are women, we limited our scope to people at the partner-level or above who have led investments themselves. This is not an exact science, since firms sometimes engage in “title inflation” or provide incomplete information on their websites.
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