Women entrepreneurs are a missed opportunity in venture capital. Here’s how investors and policymakers can change that

Dr. Ashlie L Burkart, MD  is the chief scientific officer at Germin8 Ventures, a venture capital firm that impact invests in the food and agricultural domain, and an associate at Harvard Kennedy School’s Belfer Center for Science and International Affairs. Dr. Burkart is a medical doctor boarded in anatomic and clinical pathology with expertise in gastrointestinal pathology, a grant-funded researcher, and a working mother.

[Disclosure: AFN’s parent company, AgFunder, is an investor in Nobell Foods.]

When Nobell Food’s CEO Magi Richani closed her $100 million Series B round in 2021, she was beating the odds for women entrepreneurs, as only 2.4% of VC funding was going to female-led startups. 

Fast forward to 2022, and PitchBook data shows that funding for these startups has dropped to a mere 2.1%.

In todays’ economic climate, VCs need to put more money into women entrepreneurs as a path to profit and impact, and to generate better returns. 

Female founders: a missed opportunity

Investing in women entrepreneurs and founders is a huge opportunity that both financial and ESG strategies have historically missed. Women-led companies yield better returns on investment (ROI), generating 78 cents for every dollar of funding; male-founded startups generate just 31 cents, according to research by BCG and MassChallenge.

Women entrepreneurs are also more likely to create innovative solutions to address social needs. These impact-driven businesses grow faster and make more money while solving real-world problems, a win-win on all accounts.

Backing female founders could also lessen the devastating effect the pandemic has had on women in the workforce. Doing so could mitigate the anticipated effect Roe v. Wade is predicted to have on the economy, and may even dial back the harm climate change will disproportionately have on women, since female founders are 2.5 times more likely to employ women and back gender policies.

Exemplifying this, FA Bio founder Dr. Angela de Manzanos, PhD, says that “nine of our 12 new hires at FA Bio are women. We did not hire more women on purpose, they were the best candidates, and our company attracts top female talent by providing flexible work times and being respectful of work-life balance.”

As of this writing, Dr. de Manzanos is in the process of raising a Series A round. Her advice for women entrepreneurs is “to reach out to venture capital groups with women, as they are twice as likely to invest in female and minority founding teams.”

Presently, only about 12% of decision makers at VC firms are women; just 2.4% are female founding partners. This highlights the need to get more women investors into decision-making positions to generate a natural pipeline of women entrepreneurs and multicultural founders, as well as bring different perspectives to investing.

“While raising a Series A, only twice have I encountered a female investor who is a decision maker for the VC firm” says Dr. Stephanie Culler PhD, CEO of Persephone Biosciences. “This fired me up to work harder than my counterparts to make sure my company is invested, and to emphasize that what we are doing will lead to profitable returns while working to achieve health equity.”

Rethinking investment habits

Aside from investing impactfully and putting more women VCs in decision-making positions, what else could VCs and entrepreneurs do to increase funding for women founders?

More mentorship is one strategy.

“Mentors open doors to success for women by providing access to networks of investors and entrepreneurs,” says John Strackhouse, an advisor for world-famous business leaders. Countless female business leaders have benefited from Strackhouse’s coaching.

Women founders may also find mentorship from incubators and accelerators or through social networks like Women in VC,  All Raise, and Canadian Women’s Network.

Some speculate that women have less access to VC money because investors are more likely to stick to their existing networks.

On the whole, investors rely on “pattern-matching habits” and do not purposely underinvest in women. For example, if they have successfully invested in tech companies led by men, investors aim to repeat past successes.

But by having a more diverse investment team, VCs can create new investment habit loops and challenge unexamined views through evidence-based investing.

Michael Lavin, founder and managing partner of Germin8 Ventures, says “We follow the best science and technology, and back impact-driven founders who both share our vision and inspire us. Somehow too many of our peers miss these opportunities, perhaps signaling that female- and minority-led startups, as well as women and minorities in STEM, can be thought of as some of the most underinvested asset classes and likewise best investment opportunities of our time.”

More than 75% of the invested capital at Germin8 has gone to companies with a woman founder so far.

One key mistake investors make is confusing confidence with competence.

A large meta-analytical study on leaders found that, in general, male leaders are more confident, but women leaders are rated as significantly more effective. And while investors are likely not intentionally withholding term sheets or lowballing women, unconscious bias female founders’ ability to raise capital. Long story short, women entrepreneurs undergo more scrutiny. 

“Being a female founder, the expectations set by investors are higher. There is a higher hurdle to get over, they push you harder, and they expect you to do more for less,” says Louise Edmonds, founder and CEO of Carbon Sync.

Investors tend to be unaware of this problem — nearly 8 of 10 perceive the funding landscape as balanced.

Backing gender-based policies at work

According to the World Economic Forum, it will take another 267.6 years before women enjoy the same economic participation and opportunities as men. Scarcity and soaring costs associated with child care have led many parents, primarily mothers, to cut back work hours, leave the workforce entirely, or take lower-paying jobs in exchange for flexibility.

Unequal distribution of unpaid labor in families also continues, even when both spouses are employed; wives still do the greater proportion of child care and housework. Figures show motherhood is associated with wage declines and that fatherhood with wage gain, and that the “mother-father gap” is a key contributor to the gender wage inequality. Ignoring the family, its division of labor, and related economic dependency has restricted opportunities for many women and resulted in a massive talent loss for the work and political sector.

Since female business leaders’ experiences can influence such employee policies, we need more of them backing gender-related policies in the workforce.

Research has shown that policies supporting affordable child care and paid family and medical leave increase women’s participation in the labor force and encourage men to spend more unpaid time on family care.

Policy solutions to help balance family and work responsibilities can include:

• Closing the pay gap 
• Making child care widely accessible and affordable 
• Offering more autonomy and flexibility of where and when people work, including remotely
• Extending maternity leave or flexible working arrangements that allow working mothers to breastfeed according to medical guidelines
• Providing on- and off-ramping career opportunities
• Offering more robust healthcare insurance 

One example of such policies in action is the several companies providing affordable contraception and covering travel costs for out-of-state reproductive healthcare in order to mitigate economic harm that will result from The Supreme Court overturning Roe v. Wade.

Investing in a new kind of leadership

Lastly, at this critical time when organizations struggle to find and keep talent, and with burnout on the rise, we need to carefully examine the leadership and organizational cultures of the companies we invest in.

Seventeen percent of women say they left the workforce, at least in part, because of microaggressions at work. Data shows that companies that prioritize psychological safety avoid burnout, retain talent, prevent groupthink, and perform better overall. And psychological safety correlates with greater creativity and innovation.

Women leaders, on average, hire more women, and retain talent by supporting the people on their teams and checking in on their overall well-being. At their best, they foster a culture of good intentions, empathy, acceptance, inclusiveness, and non-judgment.