New Study on Women Founders

Last week, I published a new report for the Center for American Entrepreneurship, titled The Ascent of Women-Founded Venture-Backed Startups in the United States. The study is the culmination of months of research and collaboration with some amazing friends at the National Center for Women & Information Technology and beyond.

Let me first start by saying that overall venture funding markets for women founders are abysmal. According to data given to me by PitchBook, in 2017, just 16 percent of venture capital invested in the United States went to companies with at least one female founder and only 2.5 percent went to startups with all female founders. PitchBook has since updated those numbers, and things didn’t getting better on that front in 2018—if anything, they’ve gotten worse.

Compare those numbers to women’s representation in the workforce (47 percent), business ownership (36 percent), high-tech industry employment (30 percent), or as alumni of the relatively small number of feeder institutions (particular universities, degree programs, or corporations) that tend to dominate the sector (various percentages). It is clear that particular barriers exist for women in entrepreneurship in addition to those already faced in related fields. All is definitely not well.

And yet, there are some signs of progress. That’s what my report shows. Rather than regurgitating headline statistics that are well-known by now, I dug into annual first rounds of venture capital. So, I’m tracking companies, not deals or capital invested. I do this for two reasons. First, as with some earlier work, I wanted to get a sense of the “flow” of venture-backed startups as they enter the venture-backed pipeline. Second, I wanted to track their performance over time. I did this by grouping them into annual cohorts.

With this in mind, I produced 13 annual cohorts of companies by year of first financing (2005 to 2017). I then put them into one of two groups. Startups with at least one identifiable female founder are labeled “women-founded.” All others are “non-women-founded.” Some readers may push back on that definition (opting instead for “women-founded” to mean startups with only women founders), but for reasons I describe in the study’s methodology, it was the most sound approach given what I wanted to accomplish and the data constraints I was up against. It’s not perfect but I’m comfortable with it.

The number of first financings by founder gender group were then examined over time, by industry, and across U.S. metropolitan areas. I also compared follow-on outcomes for women-founded companies versus non-women-founded ones—such as the percentage that raise follow-on rounds of capital or reach an “exit” (IPO or acquisition).

Here are the main findings:

Women-Founded Startups Represent a Small but Growing Share of Activity. Women-founded companies represented a small share of venture capital first financings between 2005 and 2017, accounting for just 16 percent of such activity over the period. However, they also showed remarkable improvement over time, rising from just 7 percent of first financings in 2005 to 21 percent in 2017—expanding the share of total activity accounted for by women-founded companies in all but one year.


Women-Founded Startups Have Similar Rates of Follow-on Financing. Once funded, the percentage of women-founded startups that raised additional rounds of capital was similar to non-women-founded firms. Fifty-two percent of women-founded startups raised a second round of capital within three years of a first financing and 37 percent raised a third round within five years. Those same figures for non-women-founded companies were 52 percent and 36 percent.


Women-Founded Startups Have (Mostly) Similar Rates of Exit. Rates of initial public offering for venture-backed startups ten years after a first financing were about the same for women-founded and non-women-founded startups (3.8 percent versus 3.7 percent). For acquisitions (including buyouts), ten-year exit rates for women-founded startups were slightly lower than for non-women-founded companies (34 percent versus 38 percent).


Women-Founded Startups are Concentrated by Industry. Women-founded companies exist in nearly every industry in our venture capital database, but are concentrated in consumer goods and services and in healthcare. The software industry produces the largest number of women-founded startups, accounting for 40 percent of women-founded companies. But, this is still slightly lower than the software industry’s share of all venture-backed startups (44 percent).


Women-Founded Startups are Concentrated by Geography. Women-founded startups are concentrated in America’s leading startup communities, including in San Francisco, New York, Boston, and Los Angeles. The San Jose metro area (Silicon Valley) is the lone exception among the leaders, where the women-founded share is below average. Other cities with persistently high rates of women-founded startups include Ann Arbor, Memphis, Philadelphia, Pittsburgh, Boulder, and Washington, D.C.

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Overall, the “pipeline” of women-founded venture-backed startups is improving steadily over time and is stronger than the headline funding numbers would suggest. And once funded, women-founded companies perform about as well as non-women-founded firms, although there is a gap for M&A that I’d like to see explained better. I’m encouraged by these trends overall. However, there is still a long way to go. Women are still extremely underrepresented among the ranks of venture capitalists and the startups they support. We need to improve that.

A mountain of academic research that I refer to in the study, along with common sense, suggests this is due to discrimination in funding markets (ie, the male-dominated venture capital industry is not well-suited to support women founders) and in the founding of the hyper-growth companies that venture capitalists back (ie, gendered processes at home, work, and in society work against women becoming founders to begin with). We need to do better—a lot better.

The fastest and surest way to do this is to have more women as venture capitalists. There are some indications this is beginning to happen, slowly. But we as a society must also address these deeper, structural issues head on. This will take time.