Entrepreneurship has become the new American dream and for decades now, that dream has been overwhelmingly male. In recent years more women are founding startups and controlling the purse strings that determine which entrepreneurs receive capital.
But how far have female founders come in pursuit of this dream?
A long way. Women tend to run more profitable businesses. They also burn less money and deliver higher returns (pdf) to investors. But for what matters to many venture capitalists—valuation and fundraising—female startup founders still lag far behind their male counterparts, not to mention live in different cities and hold different positions.
Quartz analyzed top US startups to understand how women are faring in the most dynamic segment of the American economy. We selected the top 351 male- and female-led startups since 2013 by valuation, fundraising, and growth. See the full criteria and methodology here. 1 Data were compiled by the equity research firm Pitchbook from its database of 20,964 venture-backed companies in the US.
Here’s a snapshot:
- Top female founders raise less money. They raised a median of $50.4 million in venture capital compared to $226 million for men.
- Company valuations for women are also far lower: $65.5 million for women vs. $400.4 million for men.
- Teams are still predominantly made up of men. In the dataset, 87% of top founders were on all-male founding teams, while the same was true for just 31% of women
- Female founders thrive outside Silicon Valley. Compared to men, there is a greater share of female founders in New York and Los Angeles than in other US cities.
- Women are more likely to lead consumer products and services (B2C) and healthcare companies, and men were more likely to start companies in financial services and B2B industries.
Indexing startups is always imperfect. Valuation and fundraising are never direct indicators that a startup will ever turn into a sustainable business. Despite those caveats, a comparison is useful to show how startups founded by men and women are faring differently in 2018.
Women are nowhere near parity relative to their male counterparts when raising venture capital. Women raised an average of $38 million in venture capital per founder compared to $157 million among men in the dataset. The median venture capital raised by startups founded by at least one woman tracked a similar trend: $31 million compared to $125 million for men.
Founders attributed this to fewer women having started companies in the past, and the fact that VCs are more inclined to write bigger checks to entrepreneurs with a longer track record. Female founders’ fundraising strategies differed as well.
One female venture capitalist who spoke on background said she often advised women to be less modest in describing themselves and the growth potential of their businesses compared to men. But a dose of conservatism when raising money may be wise, says Jessica Mah, the founder and CEO of accounting startup inDinero.
“Silicon Valley is quite good now for women raising money,” says Mah. ”But lots of female founders don’t want to raise huge sums.”
Often, she saw men out-raise female colleagues, unnecessarily putting their companies on unsustainable financial paths while diluting their ownership. Mah has raised just $14 million while achieving a $104 million valuation for inDinero, according to Pitchbook.
Sallie Krawcheck, founder of the woman-focused investing platform Ellevest, agreed. “People assume women are more risk-averse, but I think of them as more risk aware,” she said. “Where some might see women not maximizing their potential returns, I see them managing their potential risk.”
Startup valuations tracked a similar path as fundraising (high valuations tended to follow larger investments). Women-led companies were valued on average at 84% less than male-led companies.
Women-led startups were slower to increase in value as well. On average, male-founded startups saw valuations increase six-fold after their latest funding round, compared to 2.3 times for those with a female or male/female team. That differential means women-led companies are receiving lower valuations, and likely closing smaller rounds, than their male counterparts.
Investors and founders both said all-male teams have been the norm, but it’s becoming more common to see teams comprised of men and women. In the dataset, 87% of top founders were on all-male founding teams, while the same was true for just 31% of women. Overall, 69% of women were on mixed teams.
Part of the reason is that fewer women have started companies, historically, and it’s going to take some years to close the gap. Among top founders in the dataset, only 19% of women had started more than one company. Of those that had, none had founded more than four. By contrast, 30% of men had founded multiple startups, with several starting eight or nine companies over their careers.
The top industries for startups led by men and women were similar, but sharply diverged in a few areas. Software, healthcare, and consumer products and services (B2C) accounted for 95% of women-led startups, and 78% of those led by men. But women were almost twice as likely to start healthcare and B2C businesses, while men were far more likely to start companies in financial services and B2B industries.
The Bay Area is the dominant site for startups founded by both men and women, but women are finding more opportunities in New York and Los Angeles.
Anu Duggal, founding partner of Female Founders Fund attributed the difference to greater opportunities women have to rise up the ranks outside the Bay Area in industries from hospitality to retail. The region’s focus on software and hardware startups, which have historically excluded women, limited women’s chances of joining the startup ecosystem.
Is fundraising outside Silicon Valley better for women as well?
“Not even a question,” says Joanne Wilson, a New York-based angel investor. She said a greater diversity of industries gave women more chances to break into the startup world. “I attribute that to a different mindset to people who invest and live in those cities,” she said. “They’re interested in casting a wider net [than traditional technology].”
More women are entering the executive suite; however, men are still more likely than women to hold the CEO and CTO titles. Women, comparatively, are more likely to be chief operating officers and chief scientific officers.
Venture capitalists only invest about 15% of their dollars in startups with female founders. But in our dataset, a few funds stand out for their number of investments (a firm’s total investments in female founders is larger than the sample here).
New Enterprise Associates and GV (formerly Google Ventures) backed the most women-led companies, followed by a number of accelerators and corporate VC arms. That’s partly a function of the fact that both firms make a large number of investments each year, more than 100 in 2017 alone. Funds are also taking great pains to add female founders, with the most prominent funds adding a female investing partner to their roster in the last two years.
Smaller investors, while not backing as many female founders in absolute terms, are doing much of the hard work of finding promising women who may not fit into traditional Silicon Valley molds (alums from Facebook or Google with an Ivy League-pedigree working on a data or cryptocurrency startup). Miriam Rivera, a former vice president at Google and co-founder of Ulu Ventures, says it will take a concerted effort to raise up these examples of female founders since it’s unlikely to happen on its own.
“I’ve really come to believe it is very important for women to invest and support other women. It’s not enough that they are qualified,” says Rivera. “We’re decades behind the curve of what you would expect to see.” Small investors who have backed a high percentage of top female founders in the dataset include Paul Holliman, Karlin Ventures, and Align Ventures.