The venture capital profession is less than a century old, but it controls a substantial chunk of startup funding. What’s more, investment into venture-backed companies is already on pace to experience another record-breaking year in 2018, according to the PitchBook-NVCA Venture Monitor, the authoritative quarterly report on venture capital activity in the entrepreneurial ecosystem jointly produced by PitchBook and the National Venture Capital Association (NVCA).
However, behind the exciting façade of bold investments, raucous pitches, and massive financial returns, the reality looks very different. For every glittering success story there are handfuls of dismal performances and disappointing exits. And while the VC industry is evolving, at this point in time, discrimination is still commonplace.
Here’s what gender inequality looks like in the VC field: all-women teams received just $1.9 billion of the $85 billion total invested by venture capitalists last year, according to data on the M&A, private equity, and VC database PitchBook. That’s equal to about 2.2% of 2017’s total pot. Meanwhile, all-male teams received about $66.9 billion—roughly 79%.*
The size of the gap is staggering, but there is a sliver of positive news: the gap is smaller than it was two years ago. In 2016, female founders raised just $1.4 billion—or 1.9% of total VC funding. In fact, with the exception of 2014, 2017 marks the largest percentage of total venture dollars that has gone to female founders since PitchBook started tracking the data in 2006.
While there is no single definitive answer for why the funding gap in venture capital is so alarming, we can point to five underlying causes:
- The people who end up getting those venture capital dollars tend to share something in common with the investors – they are men. Venture capitalists tend to fund people who look like themselves, and fully 91 percent of venture capitalists who fund new businesses are men, according to an analysis by the site Axios. Money is money, but the human connection matters, and it’s simply easier for men to relate to men and form a connection with them. This means that only 9% of venture capitalists are women, by the way.
- When women do get funded, they get less: a Bloomberg analysis of 890 startups that received at least $20 million in VC funding found that women founders got an average of $77 million, compared to $100 for male founders. The average size of a deal for a woman-led company in 2017 was just over $5 million, while the average for a company led by a man was just under $12 million. This is at least partially the result of women asking for less, and also partially because women’s startups tend to be in smaller and less profitable industries. Specifically, there are far more men in the tech industry, which is where much of VC funding goes.