Startups with Female Founders Continue to Receive Less Funding Worldwide

The world of startups is fiercely competitive, with new companies constantly appearing to fight for a bit of the funding pie. Even in 2021, when funding for startups more than doubled to an astounding $621 billion globally, competition remained stiff. But startups with female founders face even more difficulties as they continue to receive less funding worldwide than their male-funded counterparts.

By all accounts, 2021 was a successful year. Millions of new businesses were created in the US alone, and nearly half of them were created by women. That is a massive increase from 2019 when only around 28% of businesses were started by women. On the other hand, only one in every three businesses is owned by women worldwide.

The growth in female-founded startups is positive, but it is only part of the picture. Overall, a majority of startups are founded by men or a combination of men and women, and it is the same for those serving as partners in venture capital funds. Since venture capital funds play a major role in who gets funding, the lack of female partners is worth noting.

Moreover, last year marked a five-year low for the amount of venture capital funding going to all-female-founded companies. According to data from PitchBook, a mere 2% of funding went to those companies in 2021, and that is despite an increasing number of deals. And while there was an increase in overall funding for startups founded by women, that is primarily due to the massive increase in funding as a whole.

But what is the solution to the poor funding for female-led startups? Many believe it is women helping women, hoping those who succeed can serve as role models and invest in other female-founded businesses. And the truth is, female VCs are twice as likely to fund women-run businesses. However, research also suggests that it can lead to assumptions that they received special treatment and make future funding more difficult to obtain.

That is no reason for women not to help one another, but it does reveal clear biases that are still being fought against by female founders. It also suggests that gender-diverse investment teams might be the best bet for getting and maintaining funding. But even then, it is not certain.

According to venture investor Del Johnson, “male power brokers [are] more likely to select or fund the women VCs who share their own patriarchal biases, and keep out the many women who don’t share those views.” So even with female VCs or diverse groups, biases might still exist.

Another factor in the low funding is the current state of the businesses and VCs led by women. Many female-founded companies are still young, and the same is true of female VCs, which mainly deal with early-stage funding and cannot provide the funds needed by late-stage companies. It is an uphill battle, but it is change that will hopefully come with time.

Hopefully, things will change since the female-founded companies out there show stellar performance. It has been shown that women grow their businesses faster and create more jobs — 84% to men’s 78%. They also tend to have a better performance per dollar, making it curious why female founders continue to receive less funding worldwide than men.