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VC firms must take a critical look at founder data to better understand funding disparities

(BUSINESS FINANCE) Report finds 1,700+ women-founded businesses that raised $1 million+, which would be impressive if it wasn’t so depressing in the bigger picture of persistent bias.

women-founded business

Unless you have been living under a rock and truly don’t care about anyone or anything, you should know by now that on average women founders only raise two to three percent of all venture capital funding – and that this statistic that has not changed in a decade.

That’s right – even though women-founded businesses are opening at a faster rate than men over the last 10 years, they are getting pence for their efforts.

What’s more, despite being outperformed in fundraising, women-founded businesses outperform their male counterparts in ROI 78-cents to 31-cents per dollar invested, according to a study by Boston Consulting Group. This data is supported by multiple studies conducted by multiple agencies on multiple pools of founders – and yet early stage funding for women founders remains pitifully low.

While these figures are maddeningly discouraging and downright unjust, Harlem Capital says there is reason to be encouraged.

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The New York based early stage capital firm focuses on “investing in minority and women founders in the United States,” their website states. In addition to addressing funding disparities through direct investment, the firm uses publicly available funding data to track VC investments by both gender and race. So far, major investment data platforms like Pitchbook and Crunchbase do not track investments by demographics other than gender.

Harlem Capital’s 2019 report analyzed a group of 1,714 women founders who raised over $1 million each, for a total of $56.4 billion in capital. The average founding year was 2013 and the median raise was $5.8 million. The top three industries represented were biotech, software, and healthcare, and more than half were SF and NYC-based.

The report includes a deep dive into the top 300 founders who claimed the largest raises. Here are some interesting learnings from that analysis:

  • White and Asian women combined founded two-thirds of the companies: White (52%), African American (18%), Latina (16%), and Asian (14%)
  • White and Asian women raised 14.8x more than African American and Latina women: White ($3.59bn), Asian ($7.94m), Latina ($1.77m), African American ($1.19m)
  • More African American and Latina founders had MBAs than White and Asian founders: African American (40%), Latina (32%), White (24%), Asian (13%)
  • Biotech, E-commerce, and Software represent 40% of companies and 29% of total capital raised
  • Seed, Series B, and Series C stage companies have the most women founders and 21% of women founders have successfully exited

Though the analysis is not rigorous enough to make claims about the state of funding women-founded businesses in the United States, it is important information to add to the research landscape. We need more VC firms to be taking a critical look at founder data to better understand disparity in this sector.

The data will be even more important as we see what companies sink or swim in the COVID-19 recession. (You didn’t really think you could read a whole article without mention of COVID-19, did you?)

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Heather Buffo is a Cleveland native, a recovering Bostonian, and an Austin newbie. Heather is the Venture Growth & Partnerships Lead at Republic where she works with partners in private investing to democratize access to capital for entrepreneurs. Heather studied neurobiology at Harvard University, and is a City Year Boston AmeriCorps alum. She likes to write for AG, drink Austin beer, and ride around town on her road bicycle. His name is Pippin. Say hello if you see them.

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