The demographics of founders who receive venture funding correspond closely with the demographics of active venture capitalists—investors overwhelmingly invest in companies run by people who look like them.
In 2018, men accounted for 82% of venture capital employees, while white people made up 70% of firms.* At the time of the linked study, July 2018, the industry employed eight Black women and two Latinas. VC firms employ less than 3% Black and Latinx venture capitalists.* 1% of VC funding goes to Black-owned companies. 0.2% of VC funding goes to companies led by Black women.* In 2017, less than 2% of venture capital dollars invested went to companies founded by all-women teams.* 10% went to companies with a male and female founder. Companies with only men on their founding teams received 79% of venture funding.
TechCrunch’s study on women in venture capital reported in 2016 that women represented 7% of the “top 100” venture firms, and 8% of the top 2,300.* Then in 2018, they released global numbers that show that while investment in companies founded by women rose 6% that year, this was due almost entirely to a single outsize Series C investment of $14B into the Chinese company Ant Financial.* Funding to women-led startups in the U.S. is stagnant; the percentage of women employed by VC firms follows a similar pattern.**
Paradoxically, these numbers of women founders and founders of color receiving venture funding are at once dismally low and record highs.*
important Other important numbers are starting to get more attention from VCs: study after study has shown that companies with diverse founding teams perform better and deliver higher returns to their investors. The most recent study from McKinsey’s oft-cited, ongoing global research on “Delivering through diversity” puts the correlation between diverse teams and profitability in stark relief: “…companies in the top quartile for gender diversity on their executive teams were 15 percent more likely to experience above-average profitability than companies in the fourth quartile.” For companies in the top quartile for “ethnic and cultural diversity,” profitability was 33% higher. When it comes to choosing your investors, companies whose boards of directors excelled at cultural and ethnic diversity were 43% more profitable than those with hom*ogeneous boards.
Other studies have confirmed that companies with at least one woman co-founder deliver better returns to investors. Despite receiving 2% of VC dollars, businesses led by women generate 10% more profit than those led only by men.* The same study revealed that women create $0.78 per $1 of investment; men create $0.31 per $1. First Round Capital’s 10-year review, released in 2015, reported that companies with a woman founder “performed 63% better than our investments with all-male founding teams.”*
contribute Of course, adding women to your founding team won’t automatically increase your profit margin, not any more than VC firms adding women partners to increase their “diversity cred” makes them better investors. We plan to add more on inclusion and retention, and the ways diversity on boards and founding teams fuels innovation. Please comment here if you have anything to contribute along those lines.
