Last month, Pitchbook reported a grim update that 2020 Q3 fundraising for female founders hit a three-year low. Firms invested $434 million in female founders, a 48% drop from Q2 in 2020 and a 36% drop compared to Q3 of 2019. For more context, total venture capital investments in Q3 2020 were on a par with the same period last year. This is heartbreaking for female founders and firms like 500 Startups that actively support female founders through our portfolio and programs.
While many VCs were likely not surprised at these findings, we know that 2021 is going to be a pivotal year in determining the momentum for female founders going forward. We’ve come too far to let progress slip. After investing in over 590 female-founded companies since our start in 2010, we have watched these incredible companies raise a total $15.9 billion and grow to a combined valuation of $17.5 billion.1
Early-stage fundraising was hit the hardest
Back in Q2 of 2020, we surveyed over 190 female founders and over 130 investors to better understand how both sides were changing their plans and preparing for a very uncertain future. Looking back at both reports, many of the predictions made by female founders and investors were spot on. Diving deeper into the data, it’s clear that while all early stage founders were affected, female founders were disproportionately affected at the pre-seed and seed stages.
The trend continues. Just last month, one of our female founder resources, FLIK surveyed over 280 female founders to find that 28% of respondents at pre-seed and seed stages were not able to make their initial fundraising goal. This was an even higher percentage than what we got from our initial Q2 survey of female founders where only 16% of female founders believed that they would not be able to make their initial fundraising goal in 2020.
As founders are looking to gain trust of their first investors, things like zoom calls and a lack of existing networks are amplifying the difficulty of that process. Providing resources, mentoring and venues to networking virtually are crucial.
Increasing representation on both sides
One of the biggest ways that VC has tried to increase investment in female founders over the years is by getting more women into VC itself. Kauffman Fellows reported this year that women in VC invest in female founders up to 2x as much as their male counterparts. Going into the end of 2020, we still have a long way to go in increasing the representation of women in VC. Only 4.9% of all VC partners in the US are women according to the October 2020 Women in VC report. When the world went into a panic, investors may have been more nervous to invest in founders that did not match what they had previously invested in.
In order for 2021 to look different than 2020, the VC community needs to continue to hire more women and especially women of color. We are proud to be one of the 2.1% of US funds co-founded by a woman of color, and we are actively giving diverse investors opportunities through our VCU scholarships to help increase gender equality in the world of VC.
How COVID-19 uniquely affected female founders
Another important factor that cannot go unmentioned is the uniqueness of this economic depression as it pertains to womens’ roles both in business and at home. In our earlier survey of female founders, 28.5% of women fundraising found work/life balance to be the biggest struggle for them during the height of the coronavirus pandemic. Fast forward to now, and according to McKinsey, “One in 4 employed women (1 in 3 mothers) are considering quitting or dialing back at work”, pointing to how COVID-19 quarantine restrictions have disproportionately put the responsibility of childcare on women.
In order to increase equity in female founders, we must acknowledge the unique challenges and experiences women go through in starting their company. It is not only important for us to invest in female founders, but we as a community must address the problem of gender equity in VC from all perspectives and stakeholders.
How we are approaching 2021
While all of this news can seem grim, we have never felt better about the future for female founders in the 500 community. After launching our female founder hub earlier this year and reaching thousands of female founders through our initiative, we plan to bring even more resources with events, community partners, and more.
We’ve been really excited to see the engagement this year from both public and portfolio-exclusive events including sessions on how to support female founders in times of crisis that included investors from Village Capital, Backstage Capital, Harlem Capital, and more.
Another key aspect of our efforts includes the 20+ resource partners on the female founders hub we have been able to work with this year. We have partnered with them on exclusive perks, as well as co-created content dedicated to the community. If you would like to join us as a community partner for female founders, submit your organization on our hub.
We fully support female founders and look forward to being pivotal in their success in 2021 and beyond.
1Based on internal estimates as at September 30, 2020 and has not been independently verified.
Header image by Jacob Lund from Noun Project
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