Industry Analysis - March 30, 2022

Why Female-Founded Startups Have Lower Valuations

Retail investors have invested more in female founders than traditional venture capital (VC) investments on a percentage basis. Female founders received 9x funding through online startup investing compared to VC in 2021. Even with this progress, female founders still face barriers when it comes to raising capital. Although female-founded startups exited a year faster in 2020 compared to the overall market, their median valuation only increased by 4% – far below the 15% increase seen by the overall market. Furthermore, the median post-valuation of female-led startups was around 50% lower than all startups in 2017.

Startup valuations are a key metric. A company’s valuation determines the price investors pay to get a share in the startup. It can also be a reflection of the worth of the business and its product. If female-led startups are routinely seeing lower valuations in the VC ecosystem, it may indicate that VC investors see these startups as having less potential than other, likely male-led companies. So does the crowdfunding market follow the same trend?

This week, we looked at the median valuation of female-led startups that were successfully funded in 2021. We also provided the median valuation of all successfully funded startups over the same period. According to our data, the median valuation for female-founded companies was 10% lower than all the valuation of all startups. In 2021, the median valuation across startups was $10 million while female-founded startups had a median valuation of $9 million. When compared to traditional VC deals, this is good news for female founders as the gap is much smaller. The online startup investing market continues to be more friendly towards female founders. 

Female-led startups may have lower valuations for a variety of reasons. For example, about a quarter of female-founded startups are in the food and beverage industry and the media and publishing industry. Companies in these industries often have lower valuations due to their business models, lower operating margins, and other factors. 

Another reason for low valuations could be the stage of the startup. KingsCrowd data shows that 82% of female-founded startups were categorized as early stage startups. Only three-quarters of male-founded startups were early stage, and 79% of all startups raising capital online were early stage. Early stage startups are usually less mature – with no or limited revenue – and therefore tend to have lower valuations. So if anything, this could mean that crowdfunding is enabling female founders to raise capital and set their companies up for success early!

Note: all data used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the crowdfunding market.

About: Yasmin Sharbaf

Yasmin is passionate about the intersection of business, art, and science. Prior to KingsCrowd, Yasmin worked on a cryptocurrency investing research project for Wellesley College Investment Office where she assessed the risks and rewards for university endowment investment into cryptocurrency. She has also previously worked in a neuroscience lab studying language and memory of songbirds. Yasmin’s dream is to make investing and financial education accessible to everyone. In her free time, Yasmin enjoys going on adventures, learning new languages, and exploring different cultures. Yasmin studied Neuroscience and Studio Art at Wellesley College.

View more articles by Yasmin

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