Jon Lubwama
Dissecting the Gender Gap: Why Female Founders Raise Less Funding Than Their Male Counterparts
The entrepreneurial landscape has been historically dominated by men, with women often facing significant barriers to entry. One of the most glaring disparities is the funding gap between male and female founders. Despite the increasing number of women venturing into entrepreneurship, they still raise significantly less funding than their male counterparts. This article aims to dissect that topic, using data to further illustrate the gender gap and explore the reasons behind this disparity.
The Gender Gap in Funding: A Data Overview
According to a study by PitchBook, in 2019, companies founded solely by women garnered only 2.7% of the total capital invested in venture-backed startups in the United States. This is a stark contrast to the 79% of total capital that went to companies with all-male founders. The remaining 18% was invested in companies with mixed-gender founding teams.
A similar study by Boston Consulting Group (BCG) and MassChallenge, a global network of accelerators, found that businesses founded by women deliver higher revenue—more than twice as much per dollar invested—than those founded by men, making women-owned companies better investments for financial backers. Despite this, the average women-founded startup received $935,000 in funding, significantly less than the $2.1 million invested in businesses founded by men.
These statistics paint a clear picture of the gender gap in startup funding. But why does this gap exist? Let's dissect the topic further.
Societal and Cultural Biases
One of the primary reasons female founders raise less funding than their male counterparts is societal and cultural biases. Despite advancements in gender equality, stereotypes about women's capabilities and roles persist. Women are often perceived as less competent, less ambitious, and less risk-taking compared to men. These biases can influence investors' decisions, leading them to favor male founders over female ones.
A study by Harvard Business Review found that venture capitalists (VCs) often ask women different questions than they ask men during pitch presentations. Men are often asked about the potential for gains, while women are questioned about the potential for losses. This difference in questioning can lead to lower funding amounts for women.
Lack of Representation in Investment Firms
The lack of female representation in investment firms also contributes to the funding gap. According to a report by All Raise, a nonprofit promoting diversity in funders and founders, women make up only 11% of decision-makers at VC firms in the U.S. This lack of diversity can lead to unconscious bias and a preference for funding male-led startups.
Limited Access to Networks and Mentors
Networking plays a crucial role in securing startup funding. However, women often have limited access to these networks due to the male-dominated nature of the industry. This lack of access can hinder their ability to secure funding.
Similarly, having a mentor can significantly increase a founder's chances of securing funding. However, women often have fewer mentors in the entrepreneurial and investment space, limiting their opportunities for guidance and support.
Risk Aversion
Research suggests that women are generally more risk-averse than men. This trait can influence the way female founders approach fundraising. They may be more conservative in their financial projections and ask for less funding than they actually need. This risk aversion can lead to women raising less capital than their male counterparts.
The gender gap in startup funding is a complex issue with multiple contributing factors. Societal and cultural biases, lack of representation in investment firms, limited access to networks and mentors, and risk aversion all play a role in this disparity.
Addressing this gap requires concerted efforts from all stakeholders. Investors need to challenge their biases and consider the potential of female-led startups. Investment firms should strive for diversity in their decision-making teams. Networks and mentorship programs need to be more inclusive and accessible to women. Lastly, female founders should be encouraged to take calculated risks and ask for the funding they need.
The gender gap in startup funding is not just a women's issue; it's an economic issue. Closing this gap can lead to more diverse and innovative businesses, better financial returns, and a more equitable entrepreneurial landscape.