I will not follow where the path may lead, but I will go where there is no path, and I will leave a trail.
This quote comes from a poem called “Wind-Wafted Wild Flowers” by Muriel Strode. The poem was published in 1903, but this particular line about carving a new path is still highly relevant to women today — especially female entrepreneurs. (Ironically, a variation of this quote is widely misattributed to Ralph Waldo Emerson. That makes today’s piece feel all the more important!) Women founders still fight an uphill battle to capture a tiny percentage of venture capital (VC) funding every year. In fact, VC investments in women founders actually fell from 2021 to 2022, decreasing from 2.4% to 1.9% for all women founding teams. While mixed-gender teams received more funding, they still received less than 20% of total VC investments in 2022. Some progress has been made, but it’s slow going.
In this Chart of the Week, we wanted to check in and see how women founders fared in 2022. After all, it’s International Women’s Day — a day to celebrate the cultural, social, economic, and political achievements of women. So let’s explore women founders’ accomplishments by the numbers. (Note: KingsCrowd tracks all women founding teams and mixed gender teams together since both have women founders present.)
Women founders made up much less deal flow for both Regulation Crowdfunding (Reg CF) and Regulation A (Reg A) than other founders. Of the total 1,168 Reg CF deals in 2022, female founders were at the helm of just 318 — about 27%. And female founders raising under Reg CF raised about 61% less capital than their non-female counterparts. But Reg A deals saw the most drastic gap. Of the 84 Reg A deals, only six were headed by female founders. That’s just 7%. The gap is even larger in terms of funding. In Reg A, female founders raised around 100% less than non-female founders.
Larger macroeconomic trends likely contributed heavily to the low funding rate. Out-of-control inflation and the Federal Reserve’s attempts to combat it have spooked the markets over the last year. The Fed hiked rates seven times in 2022. Many economists worried about a looming recession. Startup investors became uncertain. As a result, many of them — including individual investors and VCs — chose to be more cautious and pulled back on their investments.
The lasting effects of the COVID-19 pandemic could be a contributing factor to the low deal flow. Working women with families to support were disproportionately impacted by the pandemic, as many had caregiving responsibilities that took them out of the workforce.
Still, there are other complicating factors. In 2022, the initial COVID panic had subsided, and remote work was much more widespread than it was pre-pandemic. At the same time, there were still businesses mandating that their employees return to the office. Mask mandates and other COVID precautions began to fall by the wayside, and the world seemed to be leaving the pandemic in the rearview. At the same time, COVID spikes continued to impact Americans throughout the year. So for women entrepreneurs, it was a mixed bag. Remote work offered them some opportunities, but they still had to navigate an ever-evolving set of rules around the pandemic.
Crowdfunding has historically been a friendlier funding environment for female founders than the VC world. And crowdfunding investors do fund women founders at a higher rate than VC investors. So it’s disappointing to see the gap in funding for Reg A startups founded by women. Hopefully that deal flow and funding will pick back up as inflation calms and the markets recover.
Because for investors, funding women founders is not just an issue of equality. It’s also an issue of returns. A study from Boston Consulting Group discovered that startups with a woman founder generated $0.78 for every dollar of funding, while male-founded startups generated only $0.31. Woman-founded startups also tend to exit faster and at higher values than less diverse teams.
So keep an eye on women-founded startups in 2023. Investing in them is a smart move all around.
Note: All data on online startup investing used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the U.S. crowdfunding market.
