Founding a business starts with a dream—a dream to fix, improve, or create something new. Unfortunately, for many women and minority entrepreneurs, the funding they need to scale their companies is harder to secure than it is for their White male counterparts. Awareness around this inequity came to the forefront in 2020, fueled by a nationwide push for social justice, transparency, and impact investing. Two years later, have we made any progress in closing the funding gap?
Nationwide, numbers paint a grim picture. In 2019, women-led startups garnered just 3.4 percent of all venture capital funding. In 2021, that number dropped to roughly 2 percent of a record-breaking $330 million in U.S. VC funding. So, although more capital is available, early-stage companies led by women are getting even less of it than they were pre-pandemic.
And it’s not because they can’t perform: Data suggests that women-led businesses continued to exit faster and at higher valuations through the pandemic than those run by their male counterparts.
An awareness of the issue is growing. “We’re at this phase where we see there is a problem and we are having discussions about it,” says Tiffany Ricks, founder and CEO of Dallas-based cybersecurity company HacWare, adding that there has been an increased interest in mentoring Black women founders. “But that’s where it’s been stopping,” she says.
Ricks closed a $2.3 million seed round for HacWare in April. The lead investor in the round, the CEO behind Elevate Capital, expressed a vision for investing in companies led by Black women. “What he has seen is that with the companies in his portfolio, they’re outperforming many of the other groups,” Ricks says.
She is among few female founders in traditionally male-dominated spheres to receive investments from a male-led firm. Another is Brenda Stoner, CEO of Dallas-based delivery startup Pickup, who closed a $3.5 million Series A round in April 2020 and a $15 million Series B round in March 2021.
They are among the roughly 16.6 percent of working women in America who become entrepreneurs, compared to the nearly 18.3 percent of working men who do so. Of those who enter investor pitch rooms, women in retail and female-dominated spaces are often more likely to receive funding than their STEM-focused counterparts; investing in a woman in STEM can seem riskier to a traditional male investor who has seen fewer examples of success.
Focusing on Returns
This lack of representation exists on the investor side as well and is often cited as a factor for the ongoing equity gap in funding. “One of the things that we need is to get more female venture capital partners, GPs, and LPs, because the more people at the top who are looking at these companies, the more are going to be inclined to invest in them,” says Laura Baldwin, who leads the Dallas chapter of Golen Seeds.
In this area, the statistics are a bit more promising: According to The New York Times, in 2019, 12 percent of general partners at venture capital firms were women, and there were 740 women angel investors nationwide. In 2021, those numbers had risen to 15 percent and 1,000 angel investors.
There are slower gains in wealth management, ticking up from women accounting for 11 percent of managers in 2020 to 11.8 percent in 2021. “It’s a very big gap to make that 50 percent,” says Eva Yazhari, leader of Dallas-based impact VC firm Beyond Capital Ventures.
Thinking Local: Impact Investing
Eva Yazhari, who leads Dallas-based impact venture capital firm Beyond Capital Ventures and its sister fund Beyond Capital Fund, invests in early-stage companies in India and East Africa. She’s a champion of impact investing, aiming to generate a social benefit alongside financial returns. Of the three companies her firm invests in, one is woman-led. “I would call investing in women an opportunity,” she says. “I would say the same for people of color, simply because I believe that we are in networks and rooms and understand products and services differently. … It’s an opportunity to generate impact as well, because we know that women and people of color allocate to other women and people of color at a greater pace than White males.” More people are seizing this opportunity in emerging markets than domestically, Yazhari adds. “There’s probably a little bit more progress in emerging markets, simply because a lot of the investors looking at emerging markets are probably more impact-oriented.”
The number of funds investing in women startup leaders in North Texas has risen in the past two years, though Yazhari believes this effort is a small step. “They’re not at scale when we compare them to larger, institutional-quality pools of capital,” she says.
Baldwin cites a new RevTech Ventures fund that targets retail tech startups run by and focused on women as an example. Impact Ventures, whose latest accelerator cohort is made up of nearly 70 percent women-owned enterprises, is another. “I don’t think that was intentional,” Baldwin says. “Those were the best quality companies that they saw.”
Overall, moves are being made to close the funding gap, but so far, they’ve preceded the check writing phase. Perhaps, more time is needed for their impact to trickle down, but for now, progress may come down to enlightening male investors. “I think it’s a matter of educating some of these guys: it’s not just good for women, it’s good for business,” Baldwin says.
Ricks adds that even more focus on early-stage ventures would be an improvement—making more risky investments and seeing the dreams of women entrepreneurs. “I just think we need to be a little bit more of dreamers in Dallas, where we are looking at the team, and we’re looking if that team has built something before,” she says. “Do they have the capabilities of doing this? And if so, then, betting on that.”