It's no secret that women-owned businesses can't get funding.
The statistics paint a clear and discouraging picture. Between 1997 and 2013, the number of women-owned establishments grew 1.5 times more than the national average (68% versus 47%, respectively) and women-led, venture-backed companies bring in 12% more revenue than male-led companies, according to research from Babson College. Despite this, only 2.7% of all venture-backed companies have a woman CEO. That’s 183 out of 6,517 companies or $1.5 billion out of the $50.8 billion invested between 2011 and 2013.
While it’s true that female entrepreneurs have made considerable progress, they still aren’t able to tap into investment opportunities anywhere near the same level that men can. Many blame the lack of funding opportunities for women on the shrinking number of women decision-makers in venture capital firms, which have declined from 10% in 1999 to 6% today.
A lot of it comes down to women no longer thinking it's acceptable to work in a model that hasn't changed in decades. With more women entering the workforce, failing to reconsider or re-evaluate how this affects your industry can have detrimental effects on overall performance.
But fortunately, it might not be as bad as it looks. The dwindling number might just mean that more and more high-experienced women investors are leaving big firms to form their own and these reports only count women in funds upward of $250 million.
The women leading the pack to form their own funds include Jen Fonstad and Theresia Gouw of Aspect Ventures, Adele Oliva of 1315 Ventures, Aileen Lee of Cowboy Ventures, Susan Mason and Jodi Jahic of Aligned Partners, Kirsten Green of Forerunner Ventures, and Tracy Warren of Astarte Ventures.
Costello says that while the numbers are bad, women decision-makers in VC firms never really exceeded 5% or 6% because the numbers reported in the '90s included women in high-level administrative positions, such as chief admin officers, chief operating officers, and chief financial officers. Although these women made considerable contributions to VC firms, they are not investors and do not vote on investment decisions, sit on boards, have an investment track record, or provide returns to the firm.
Nonetheless, whether the numbers are actually shrinking or just staying depressingly low, a big reason why it's almost impossible for women to break into the industry comes down to a long-standing male network and business model that hasn't changed in decades.
"I believe that there’s a dynamic inside these firms that makes women not want to stay," says Bonnie Crater, CEO of Full Circle CRM and former senior vice president at Salesforce, Netscape, and Genesys. "I think the dynamic is subtle, that it’s often hard to put your finger on, but I believe that there’s a lot of really confident women who were VCs and have left venture because the environment they worked in is not optimized to make it easy for them to function."
Part of what it takes to be a successful venture capitalist is having a good grasp on what's happening in surrounding circles so that you can connect the dots and predict the next big investment opportunity, says Ari Horie, founder of Women’s Startup Lab, because that’s where a lot of the dealings take place. For women, that kind of networking might be tough if they don’t get included or just don’t have the time to form relationships after-hours.
Even if women did put in the endless hours in the beginning, they might opt out at some point because they get to a point and think, "No, that’s not how I want to live," says Horie.
The Babson study found that funds that have women partners are more likely to fund companies that have women executives. It’s not that women VCs are giving women entrepreneurs special treatment, says Horie, but rather when you’re a woman, "you understand the need of industries that are very heavily-driven by women," she tells Fast Company. "[Women] really understand the scope of these industries and the potential. We have to have women VCs that can make good calls and judgment."
Women have always made up a very small number of the venture capital pie, says Costello, but now that the number of women entrepreneurs is growing, it’s even more crucial that there are investment networks these women can go to for support.
"Oftentimes, we see a number of the big firms that have no women partners at all," explains Costello. "So when a woman pitches, there’s just no organic knowledge about many of the markets that are really growing right now where there are really great opportunities and a need for venture capital."
Although the numbers are shrinking, Costello—dubbed the "Godmother of VCs" by Horie—says she’s hopeful because there’s been a growing number of top women VCs who are "opting to leave some of these really big venture firms they’ve been successful partners at for years and actually going out and starting their own venture firms."
"I think that’s going to have more impact on our economy and more on women than if they would have stayed with their big firms," she says. "My view and my message is that yes, what’s happening in Silicon Valley right now is really unfortunate. It’s an old model and they’re going to have to change or venture capital in Silicon Valley is going to become almost irrelevant but until that happens, we can change that ourselves with just a little bit of focus and a little risk-taking and a little more energy around change."
Crater has a similar message for women VCs having a tough time in their firms. "Go quit and raise your own funds," she says.
"I would love to see more Theresias [Gouw] and Jennifers [Fonstad] starting their own funds because if you have funds that are run by women, they are more likely to fund women. They’re not going to fund all women, but if you have more women involved in venture and they’re running their own funds, then the natural thing will happen where more women who are running companies will get funded."
Despite the numbers, women still have a lot of options. There are more and more organizations aimed at leveling the playing field. Horie’s Women’s Startup Lab pairs female entrepreneurs with other founders and advisers who can help them build their businesses in the early-stages and programs like Pipeline Fellowship prepares and trains women for angel investing.
"There are a lot of women who have money, but they’re not comfortable investing," says Horie. "When they get together they don’t talk about stocks. Guys do that all the time. When women get together, they don’t talk about that even if they have lots of money."
As women become comfortable investing and as the number of women-focused angel groups and venture firms run by women continue to grow, female entrepreneurs will have more places to turn to if a male-only venture firm can’t grasp the value in the opportunity she’s pitching.
Join Leadership editor Kathleen Davis with Anu Duggal, the founder of FCubed (Female Founders Fund) and Kathryn Tucker, CEO and founder of RedRover, on Friday, March 6th at 11 a.m. ET for a discussion about the state of funding women-led startups.