Recently, the American Forbes presented the annual ranking of the fastest-growing startups, which can soon be estimated at $1 billion, the so-called list of future “unicorns”. Of the 25 companies included in the rating, only 3 are headed by women. Let’s analyze why it is so?
There is nothing more permanent than temporary. Coronavirus has turned the world upside down, and the changes that began in February continue to occur in all areas of business. I’m not talking about the negative aspects, on the contrary, the global digitalization, which analysts expected no earlier than in 3-4 years, is already happening here and now. Many companies understand that well-tuned communication between employees and clients in instant messengers and via Zoom video conferences does not reduce the efficiency of the workflow. But one thing, unfortunately, remains unchanged: the state of venture financing for women and, as a result, the degree of representation of women in the ranking of the most promising startups.
Of the 25 future “unicorns” in the 2020 list, only 3 companies are headed by women: Nikki Pechet, co-founder and CEO of Homebound, Brynn Putnam, founder and CEO of Mirror, and Bernadette Nixon, CEO of Algolia. The fourth company, Lyra Health, was founded with the participation of Dr. Dena Bravata, but she’s not its CEO.
If we talk about CEO, then there is a noticeable slight improvement compared to 2019 indicators, however, the number of founders and CEO women in the ranking of the most promising startups remains the same. And it’s not a matter of lack of effort: Forbes and TrueBridge Capital Partners have been looking for nominees for more than two months and received 144 “suitable” applications. Only 11 of these companies were headed by women.
The point is a constant lack of funding. According to PitchBook, companies founded by women raised a record $3.3 billion in venture capital funding in 2019. However, this amount represents only 2.8% of the total investment in American startups. Crunchbase’s global data show similar trends: even though last year, startups founded by women or with the participation of women received about $20 billion, teams consisting exclusively of women received only 3% of the total venture capital investment in the world.
Statistics are not on the side of women and outside raising capital. Since 2009, the share of startups founded by women has doubled, but it still makes up only 20%, which creates an unfortunate mathematical situation. “Only an incredibly few startups created become unicorns,” says Aleina Percival, CEO of Women Who Code and partner at Valor Ventures. “If you look at the funding and support that startups run by women receive, it is such a small fraction that the number of startups that can potentially reach a prestigious and exclusive billion status becomes even less.”
The situation is aggravated by the gender composition of people who allocate capital. “Unfortunately, 91% of decision-makers in the venture capital industry are men, and this leads to men-oriented companies getting support more often,” said Jess Lee, Sequoia partner, during a recent webinar. Different studies give different numbers, but overall she is right.
White men are just as capable of investing in companies run by women as women, but there are a lot of misunderstandings and missed opportunities. Carolyn Childers, co-founder, and CEO of the platform for women’s networking Chief, who just last week announced the $15 million A1 Series funding round, faced with this while trying to get seed funding.
“We hear comments like “do women need this at all?” or “it’s a great business to live in, but I have no idea how it can become a billion-dollar business.” Even though we can show that there is a request from the consumer and the company is growing rapidly,” she says.
Childers was still able to attract investors such as General Catalyst, Inspired Capital, and GGV Capital, and said that the presence of investors who believe in her vision has simplified the next rounds of financing compared to a seed. But she immediately notes that even now Chief has not reached the level of series B or C, which would allow her company to be considered a candidate to “unicorns”, and she does not expect that these later rounds will be easy to carry out.
“I think that the proportion of women leaders, co-founders, and founders drops sharply at the B and C funding stages,” she says. – In A Series, funding largely depends on how well you have shown yourself between the seed round and Round A. B and C Series is “what is your next step, what is the vision?” According to her, it is at this stage, when you have fewer indicators that you could rely on, and pitches should become more effective, women always encounter difficulties.
Continuing the dialogue on the underrepresentation of women, as well as the work of organizations like Times Up and All Raise, should gradually change the world of entrepreneurship and venture financing but two new obstacles have recently appeared: PitchBook reports that in the first quarter of 2020 the amount of financing of companies founded by women, fell sharply compared to the first quarter of 2019, and, of course, a pandemic. Childers and other entrepreneurs call March the month when investors took up the all-around defense and thought more about their portfolio companies than about new investments.
“I fear a possible rollback in this area,” says Lee from Sequoia. “I don’t want women to take one or two steps back, because people are returning to the familiar and safe things.”
Lee noted that she continues to meet with women founders every day, and these meetings inspire her with optimism about the future. “Personally, I am convinced that right now women can shine,” she says. This point of view is shared by Alexa von Tobel, founder of LearnVest and Inspired Capital venture firm.
“Over the next year and, undoubtedly, in the future, we will see that the transition to remote work takes on a more permanent character. I think such a surge of productivity will allow an increasing number of founders to say: “I want to build a business,” says von Tobel.
These new companies will not instantly become the most promising startups, but von Tobel says working from home can be useful for large organizations.
“We save a lot of time on things that did not bring us closer to long-term goals, such as endless travel, endless taxi rides, the way to the office, endless meetings. We recognize that it is a productive way to achieve a lot,” she says. – I am the mother of three young children, and I think that the fact that for the past twelve weeks I could have breakfast with them every day and put them to bed, working in parallel, probably on the best projects in my career, indicates what we could build a brave new world. And that would be a step towards fair rules of the game.”