How venture capital mega-rounds obscure improving gender diversification of startup founders

Last month, I published The Ascent of Women-Founded Venture-Backed Startups in the United Statesa new report for the Center for American Entrepreneurship. I encourage you to read the whole thing, but here’s a summary. I also posted an additional analysis from the underlying data a few days ago.

My report looked at first financings by the gender composition of founding teams. I chose first financings for two reasons. First, I was particularly interested in capturing the number of companies entering the venture-backed pipeline each year. Second, I wanted to track company outcomes over time (follow-on financings and exit rates), which was the main novelty of the study. In order to do this, I had to group them into annual cohorts at the time they raised a first round of venture capital.

Today, I’m going to do something entirely different—analyzing headline numbers of venture capital investments ($) by founder gender. I’m doing this for two reasons. First, while my study provided some important new information, headline numbers of capital invested is what clicks in most people’s minds for “what’s going on” (though I disagree). Second, I want to point out that looking at headline numbers of capital investments might obscure a truer picture of a diversifying founder base because giant, male-dominated funding rounds are swallowing VC markets and drowning out traditionally-sized deals.

To test this idea, I pulled annual figures for venture capital deals and capital invested by round size (<$50M, $50M-$99M, $100M-499M, and $500M+) and gender dynamics of founders (women-only, mixed gender, and men-only). What my analysis shows is that large rounds are male-dominated and are partially drowning-out growing gender diversification among founding teams raising capital at traditional venture round sizes.

To demonstrate how much the funding dynamics have changed, the first chart and table show the distribution of venture capital investments ($) by round size between 2006 and 2018 (note: figures for 2018 are preliminary and should be taken with some caution).


As the data show, large round sizes have begun to dominate the venture landscape. Just 39% of capital invested in 2018 was in deals under $50 million in size (though I expect this number will be revised up by more than a few percentage points in the future) compared with 72% as late as 2013. Today, nearly half (45%) of venture capital invested is in deals that are $100 million or larger. That’s a tectonic shift in the shape of the venture capital industry.

So with that in mind, have female founders been as likely as male founders to participate in these large funding rounds? If not, the sheer magnitude of capital flowing into a small number of later stage companies could obscure a promising amount of startup activity and capital flows into companies at more traditional venture-backed round sizes. As the next sets of charts show, this is exactly what is going on.

Here, I segment capital investment into three groups by deal size, <$50M, $50M+, and total (as a benchmark), and look at the contribution of the three founder gender groups to each. The story is clear: women-only and mixed-gender founded startups have been steadily increasing their share of venture capital investments in deals under $50 million. However, the dominance of mega-rounds—and the lack of women- and mixed-gender founders among them—is pulling down the gender diversity of venture capital overall.

Mega-rounds are seeing an increase in founder-diversity, but it’s at a much more muted pace and it appears to have flattened-out in the last few years, at least for mixed-gender founded startups.

In these charts, the line values represent that gender group’s share of all venture capital investments for that particular round size group and year.


What this all means is up to each individual reader. Some may look at this and cheer that women-founded startups are steadily capturing a higher share of venture capital dollars deployed—particularly below the $50M size threshold where venture traditional venture activity occurs. They may conclude that many of the headline statistics that have been anchoring the conversation on the funding gap are being skewed by factors that are predominantly beyond issues of gender—instead reflecting a shifting venture landscape where a small number of male-dominated companies are capturing large sums of money.

Others will look at those same figures and cite it as evidence that women are being shut out of some of the biggest and most important rounds of financing, or that particular barriers exist for women in the founding of billion-dollar “unicorns”—where it is an empirical reality that women are even more underrepresented than in venture overall.

Either way, I think we can all agree that women’s representation as founders of venture-backed startups is disappointingly low, especially when compared with their rates of participation in the workforce (47 percent), business ownership (36 percent), high-tech industry employment (30 percent), or as alumni of the feeder institutions (universities, degree programs, corporations) that tend to populate the sector (various percentages).

This suggests that particular barriers exist for women in entrepreneurship beyond those already faced in related fields, and we have plenty of work to do to improve that—starting of course with improving gender diversity among the venture investor base. I for one am encouraged to see things moving up to the right—even if slowly—but know that we have a lot of work yet to do. The numbers presented here suggest that things are improving in ways that headline statistics are not capturing fully.