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Why it’s incredibly rare for companies led and founded by women to IPO

It goes back to the venture capital firms funding them, and even successful female venture partners struggle to raise the capital necessary for their funds.

Why it’s incredibly rare for companies led and founded by women to IPO
Bumble CEO Whitney Wolfe Herd made history on the Nasdaq floor in February. [Photo: Courtesy Bumble/Kristen Kilpatrick]
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Earlier this year, Whitney Wolfe Herd made history when she became the youngest female founder to take her company public. She rang the Nasdaq bell dressed in a bright yellow power suit, a hat tip to Bumble’s signature color—while holding her toddler son, a hat tip to the millions of women who have been working from home with kids crawling all over them during the pandemic. Women like me.

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This image stands out not just because of the bright yellow suit and the baby in hand, but also because of how extremely rare someone like Wolfe Herd is. More than 2,000 companies went public in the U.S. between 2013 and 2020. But only 18 of them were led by a female founder and CEO.

This stark statistic is itself a consequence of who gets funded. Venture capital provides the dollars that fuel companies from two guys (yes, guys) in a basement to ringing the stock exchange opening bell. And while billions of dollars are invested in the space every year, just over 2% of those go to female-founded companies.

This shocking number is also a consequence of who does the funding. According to data from Women in VC, only 4.9% of U.S.-based VC partners are women, and fewer than half (2.4% of the total) are founding partners who control an outsize proportion of a firm’s investment decisions. The Securities and Exchange Commission recently reported that across all asset classes less than 1% of $70 trillion in global financial assets are managed by minority-owned or women-owned firms.

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So if less than 0.01% of all U.S. IPOs are led by female founders, and this is partly because only 2.3% of VC dollars go to female founders, which itself is partly because only 2.4% of VC founding partners are women, it begs the question:

Why aren’t more women starting VC funds?

If you go by what you read, by and large they are. Hundreds of new microfunds, many of them led by women and underrepresented investors, are popping up and making waves. But the noise is not yet the signal: The Women in VC report from 2020 found that only 5.6% of U.S. venture funds had at least one female founding partner. Jessica Peltz-Zatulove, cofounder of Women in VC, estimates that there are fewer than 1,000 women in the entire world who are founding VC partners. That’s half as much as the number of people who get killed by lightning in the world every year.

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Raising a VC fund is hard for most people. You need grit, business and financial acumen, specialized knowledge of the space, access to “dealflow,” excellent storytelling skills, and the ability to negotiate and close deals over time without pissing people off. Most important, raising a VC fund requires money and access.

“The traditional route to starting a venture fund requires a certain level of financial independence and an extensive network of prospective investors,” says Martina Welkhoff, managing partner at WXR Fund.

Mainstream VC funds are funded by limited partners (LPs), typically large institutions and ultrahigh net worth individuals, each of whom invests up to hundreds of millions of dollars at a time. But these institutions want to see a fund’s trajectory before they invest, so the bulk of these dollars are not available to new fund managers. What’s more, these investors are not easily discoverable. You have to have an “in.”

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“We’ve been friends with a few incredible women emerging managers who had impressive returns, several exits, and some top Silicon Valley founders in their portfolios—and still were facing challenges while pitching to LPs,” says Sophia Platt, founding partner at the Bridge, a conference that connects emerging managers with potential investors. “Some of these women take 60-plus meetings a week but still struggle to close small proof-of-concept funds.”

Emerging funds are more likely raised from individual investors each contributing a relatively small amount. You need dozens, if not hundreds, of wealthy individuals willing to take a chance on you when nobody else is. For people who are not already well connected and wealthy, this exercise is daunting.

“For underrepresented funders, it is the convergence of unconscious/conscious bias and a perceived lack of relevant experience which makes breaking into VC and raising a fund from the ground up difficult,” says Cat Hernandez, partner at the Venture Collective (TVC) and general partner at TVC Momentum Fund. “The biggest challenge, by far, is deeply integrating yourself into networks of high net worth individuals and family offices.”

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A number of initiatives have sprung up to address this gap. For instance, tech executive and Community Fund general partner Lolita Taub launched a matchmaking tool to help other emerging managers connect with like-minded LPs. “If GPs meet with the right-fit LPs, magical things can happen like launching a fund,” she says.

Platt and her cofounder, Emna Ghariani, are attempting to connect the dots at scale through the Bridge. “Our mission is to create the world’s largest ecosystem for women fund managers and prospective investors in their funds,” says Ghariani. The two Bridge conferences so far have resulted in more than 400 fund-investor matches and nine successful investments. The cofounders are aiming to double those numbers with the next Bridge conference this summer.

“The goal is to get these women funded—to put them in front of prospective investors who they could never access otherwise,” Platt says. “We give opportunity to anybody who has the ambition, the skill, and the track record to raise a VC fund.”

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Leslie Feinzaig is the founder and CEO of the Female Founders Alliance.