When Data—Not Humans—Guide VC Funding, More Women Win

How investment platform CircleUp uses big data to fight gender bias.

When Data—Not Humans—Guide VC Funding, More Women Win
[Illustrations: Natali Brillianata via Shutterstock]

“Traditionally, entrepreneurs have raised money in old-boy networks, typically in San Francisco or New York,” says CircleUp CEO Ryan Caldbeck. From CircleUp’s start in 2012, it has aimed to help entrepreneurs bypass this network–instead providing an online marketplace that connects consumer-product startups with accredited investors who can make investments through its platform. “On CircleUp, [who you know] is not what’s important,” Caldbeck says. “We have the network. We give the network to everyone.”


Four years later, about 160 startups—companies that sell everything from organic cosmetics to wearable computers—have together raised $180 million through CircleUp. Although traditional investment firms have contributed more than half of the funding, the group of entrepreneurs whom they have financed has a much different composition than its counterpart in the world of traditional venture funding. Though women own about a third of small businesses, a recent report from the Senate committee on small business and entrepreneurship found that female entrepreneurs receive about 4% of the total value of all conventional small business loans, and only 7% of venture capital funding. Researchers at Babson College found that only 2.7% of venture capital-funded companies had a woman CEO. Among the 160 startups that have raised money on CircleUp, by contrast, 35% have female CEOs or founders, and 34% of all the growth equity invested has gone to those female-led companies.

Comparing CircleUp entrepreneurs to entrepreneurs in general is a bit of an apples-to-bananas comparison, as CircleUp focuses only on consumer products, while most studies about fundraising include multiple product categories or focus on tech startups. But women with projects on Kickstarter have experienced a similar boost. And CircleUp’s tech-focused competitors also report funding higher percentages of female entrepreneurs than traditional investors.

Online investment marketplace SeedInvest says that 20% of companies that have raised money through its website have had a female CEO or founder, while MicroVentures Marketplace, a similar company that allows both accredited and non-accredited investors, says 15% of companies funded on its platform have had female founders or CEOs. When business tracking software company PitchBook looked at companies that had raised traditional venture capital since 2005, by contrast, it found that only 9.7% of them had female founders or CEOs.

These companies have not completely removed gatekeepers. CircleUp says it has received about 10,000 applications from entrepreneurs who want to raise money on the website. Its team has selected fewer than 160 to post on the site, less than 5%, but its application-based approach has unwittingly removed some opportunities for bias. Entrepreneurs do not, for instance, need to give an in-person pitch, which suggests investors will instinctually find more persuasive if presented by a man.


CircleUp has avoided other aspects of the pitch process prone to bias through automation. For the past 19 months, it has been working on a program that assesses applicant companies using 92,000 data points from 150 sources, including each startup’s own financial information and data from 10,000 past applications to CircleUp. Internally, employees call the program “The Classifier.”

The Classifier rejects about 95% of applicants. As CircleUp employees review the remaining companies, they reference the Classifier’s report and scores for reference. “You’re triggered to justify that decision in light of the numbers,” says CircleUp cofounder and COO Rory Eakin. “It helps create that environment of transparency.”

Relying partly on an algorithmic assessment of financial performance, product, brand, team, customers, and competition also helps CircleUp avoid a common bias. As Eakin explains it, a common way investors make decisions about consumer product companies is, “I’m going to invest in a product because I like it, I use it.” Considering that only 6% of partners at venture capital firms are women, according to the Babson College study, this bias can be especially frustrating to entrepreneurs with women-centric products.

CircleUp charges a commission on the money that companies raise, and so it is incentivized to pick companies that investors will find promising. So far, it has benefited from its inclusive approach. According to Eakin, companies that have raised money on CircleUp have since grown 86% annually.

Correction: The original version of this article incorrectly stated that 500 startups had been funded on the CirclueUp site. The correct number is 160.

Related: Sallie Krawcheck On The Benefits Of Investing In Women

About the author

Sarah Kessler is a senior writer at Fast Company, where she writes about the on-demand/gig/sharing "economies" and the future of work.