I had an interesting experience during our recent fundraise when a male VC friend remarked that our team should consider changing the name of the fund. “Your returns are great,” he said, “but funding only women-led companies is a hard sell to institutional investors.”
His comment encapsulated exactly what continues to be the most significant hurdle for female entrepreneurs today. Many investors view female-founded companies as “impact investments,” versus an opportunity to generate alpha returns—or excess returns earned on an investment above the benchmark return—within an asset class that has been historically under-appreciated.
Over the past 12 months, we’ve seen incredible momentum from a diverse cohort of growth-stage female-founded companies for the first time in history. This February, 31-year-old Bumble CEO Whitney Wolfe Herd took her company public and become the 22nd woman ever to do so. She created a different role model of success in bright yellow, holding her one-year-old son as she rang the NASDAQ bell. In May, FIGS became the first company to go public led by two female co-founders in the healthcare apparel space. A month later, in June, Anne Wojcicki led genetic testing company 23&Me’s public offering that valued the company at $3.5 billion. Just this August, Hello Sunshine, a female-founded media company building content specifically for female audiences, was acquired for an estimated $900 million, and Maven Clinic, the largest virtual clinic for womens’ and family care was valued at $1B. These companies vary by sector, founder experience, and focus, and demonstrate that we’re on the cusp of a real inflection point. The opportunity is apparent that there’s real money to be made investing in women, yet investors themselves have not caught up.
Despite these examples of success, we continue to see women face many of the same challenges when it comes to actually raise capital. Women-led startups received just 2.3% of VC funding in 2020. To put that in absolute terms, that 2.3% breaks down to roughly $3.7 billion going towards women, as opposed to the $160 billion that male founders receive. In today’s day and age, this is archaic. We know diversity matters, and that diverse perspectives generate more favorable outcomes. And while organizations have spoken quite loudly about their commitments to inclusivity, the dollars have not been put to work.
But as investors drag their feet, the opportunity is only increasing. The dial has moved in the last 10 years, with the number of female entrepreneurs in the U.S. climbing more than 30% since 2007. So though strides are being made toward gender equality in the funding space, the larger market isn’t moving fast enough. We need to keep the momentum moving forward within the broader ecosystem to see significant, long-term, sustainable progress.
Over the last eight years, Female Founders Fund has raised more than $90 million to invest in female-led businesses. This July, we closed our third fund after raising $57 million. We created what we consider to be the largest fund for seed capital specifically for female founders, with the support of top-tier institutional investors. Reflecting back to our first fundraising process in 2012, consisting of 700 meetings to raise a $5.85-million fund, what strikes me most in hindsight is that many of the conversations we had then with institutional investors have not changed today. The questions continue to be around whether our investments focus exclusively on fashion or beauty, how we balance our professional and personal lives, and whether we get enough “deal flow,” in other words whether there are even enough female-founded companies for us to invest in.
The leaps and bounds we’ve seen across our portfolio and the broader ecosystem, however, prove that momentum is already there. I’ve never been more bullish on the future. My colleagues and I often discuss solutions and how we can make them more turnkey for those at every step of the funding ladder.
One obvious solution is to involve more women—and more BIPOC women, especially—throughout the decision-making process. This may not simply require pulling up more seats at the traditional table, but building our own, as was the case with Female Founders Fund. When female VCs do call the shots, research shows they’re twice as likely to invest in female founding teams. With more and more female investors striking out on their own, we’re seeing a new guard of VCs who recognize and appreciate that diversity of thought needs to be instilled in their values from the get-go.
Now, I’d be remiss if I didn’t acknowledge that only 12% of decision-makers at VC firms are women, and as of 2020, many firms still don’t have a single female partner. That’s changing. After all, the market is missing out on an opportunity that’s not only exciting but objectively profitable, too.
Today, women are building innovative companies across a variety of sectors. Healthcare, for example, has many new market leaders led by female entrepreneurs, like Maven Clinic, Tia, Everlywell, and Kindbody. These companies are reaching millions of consumers, with products and services putting their consumers first. Last December, after a $175 million Series D fundraise, at-home health-testing company Everlywell reached a $1.3 billion valuation, and this May, digital health company Ro acquired women’s health startup Modern Fertility for $225 million. Healthcare is just one industry where female founders are breaking barriers and building the innovative companies of the future.
The success of the healthcare sector demonstrates that women aren’t just impact investments. But at Female Founders Fund, we know their singular success isn’t enough. We’re ecosystem builders, and we’re cognizant that our ecosystem isn’t gaining ground as quickly as it can, and should.
There’s already a powerful domino effect at play. With more female-led pools of capital taking off all over the country, women are steadily accruing more capital and investing in other women with it, which has been incredibly exciting to witness.
To move forward and continue the momentum, we need the funding community to recognize we have work to do and prioritize change from within. Here are three tangible ways the investment community can sustain long-term change:
It’s 2021. Your portfolio should be diverse
Investors can’t keep operating the same way and expect different results. If you want to support more female founders, you have to examine everything from your sourcing, to your team, and the incentive behind reaching these goals. Make the intention to access more diverse women-founded companies, as well as a concrete plan to pursue it clear to everyone on your team.
Use your privilege to support inclusivity from within
Everyone who is directing capital, whether as an institutional investor or as a venture capitalist, has opportunities to support the recruiting and promotion of diverse teams. Make that a priority systematically across your investments and over time. Measure who delivers, and reward their success. Your team should be a reflection of your values and commitment to diversity across all different areas, including gender, race, and sexual identity.
Hold yourself accountable and include diversity as a success KPI year over year
Set goals, and publish your results against those goals. Use this as a reminder to regularly review your pipeline of investments and where you need to make changes and improvements against this KPI. Share these results publicly and encourage your peers to do the same so this becomes an industry standard.
Our ecosystem has a long way to go before we reach the equality for which generations of activists have fought, but progress is progress, and there’s reason to celebrate along the way.
Anu Duggal is a founding partner of the Female Founders Fund.