Startups founded and led by women often face significant obstacles when seeking funding from venture capital firms, despite indications of their potential for success. A mere 2% of all venture capital funding is directed towards female-founded startups, and even fewer go to startups with female CEOs.

This puts the industry at a crossroads, facing an urgent call to shift its focus towards inclusivity and innovation by prioritizing investments in women-led startups.

Throughout history, there has been an imbalance in the funding landscape between ventures spearheaded by women and those led by men. This imbalance hinders diversity and fails to leverage the wealth of potential that female entrepreneurs bring forth.

Venture capitalists hold the key to instigating economic transformations by fostering a new era of diverse, inclusive, and impactful innovation through the strategic allocation of resources, expertise, and support to these underrepresented founders.

According to a BCG analysis, if female entrepreneurs received the same funding as their male counterparts, the global GDP would increase by 3% to 6%, boosting the global economy by up to $5 trillion yearly.

Beyond Economic Growth: Importance of Women-Led Initiatives

The significance of women-led initiatives extends far beyond equitable representation. These enterprises are pivotal in driving social change, fostering inclusivity, and promoting sustainability within industries.

Through their unique perspectives and leadership styles, female entrepreneurs often prioritize sustainability, community well-being, and ethical practices within their business models. This approach not only drives innovation but also promotes a balanced and equitable work environment that benefits all employees.

Furthermore, the success of women-led businesses serves as an inspiration and opens doors for future generations of female leaders, demonstrating that gender should not be a barrier to achieving business excellence.

Supporting women-led initiatives is, therefore about recognizing and harnessing the immense potential women bring to the entrepreneurial landscape for the betterment of society as a whole.

The Current State of Investment in Women-Led Startups

Despite the challenging fundraising landscape, women-led venture capital funds saw progress in 2023. Research from Venture Capital Journal revealed that the share of total fundraising by women-led funds rose to approximately 3% of the $107 billion raised globally by venture funds last year. This marked an increase from less than 2% of the total in 2022.

However, the disparity is not reflective of the potential or performance of women-led companies, as research indicates that:

Businesses founded by women deliver higher revenue —more than twice as much per dollar invested — than those founded by men.

Challenges and Barriers

The underinvestment in women-led startups can be attributed to various challenges and barriers.

• Lack of representation of women in venture capital firms. The majority of investors are drawn to entrepreneurs they can relate to or understand better, which frequently results in a bias for businesses managed by men. Because women make up a small portion of decision-makers in these companies, women entrepreneurs are at a disadvantage because of this unconscious prejudice that favors male-led businesses. In addition to having an impact on how resources are allocated, this network effect restricts women-led companies’ access to funding and growth potential by limiting opportunities for mentorship and insightful feedback.

• Gender stereotypes and bias in society. Empathy and caution are attributes that investors tend to connect with women, according to studies, whereas risk-taking, assertiveness, and confidence are traits associated with males. Women-led businesses may find it more difficult to attract partners and investors as a result of these preconceptions, which can also diminish their perceived worth. Furthermore, biases like these can also show up in the way that goods and services are advertised and interpreted by customers, which poses difficulties for female entrepreneurs attempting to launch their companies in a male-dominated market.

• Lack of access to capital. Women still have difficulties obtaining traditional types of financing, such as bank loans and venture capital, despite advancements over time. Low credit scores, a lack of assets or collateral, and a small network of possible investors are frequently the causes of this. It is also less common for female entrepreneurs to obtain money from angel investors, who typically fund companies started by people from comparable backgrounds and situated nearby. Likewise, many angel and venture capitalists choose to make investments in fields like technology and finance. Fields that have historically been monopolized by men. This may make it more difficult for female-led businesses in other industries to raise capital, thereby sustaining gender disparity in the startup community.

• The lack of diverse representation within the venture capital and investment communities. Because men make up the majority of venture capitalists and angel investors, their implicit prejudices and inclinations can greatly impact their choices about investments. Even while studies have demonstrated that diverse teams make better judgments and perform better, there is still a lack of diversity in the investing community, which makes the decisions about which startups get funded. Investment in training and mentorship programs for women and underrepresented groups is one way to promote diversity within the investment community, which can foster a more welcoming atmosphere for fund-seeking entrepreneurs.

• Limited access to business networks. Any firm that wants to succeed must establish a strong network since it offers chances for partnerships, collaboration, and potential clients. However, because males predominate in many businesses, women frequently encounter obstacles when networking. These environments may make women feel uncomfortable or alienated, making it more difficult for them to make the connections and relationships vital to the expansion of businesses. In order to give women-led companies access to important resources and opportunities, efforts should be made to establish more diverse and inclusive networking events and groups.

• The stereotype that women are more risk-averse. There is a misconception that can impact funding decisions negatively. This stereotype presents itself in ways, such, as assuming that female entrepreneurs are less inclined to take bold steps or pursue high growth prospects. These biases shake the confidence of women founders. Dissuade investors from supporting their ventures regardless of the success of the startup. To challenge this stereotype it is essential for the investment community to consciously acknowledge and back the capabilities of women-led startups, in innovating and expanding. Showcasing entrepreneurs and their accomplishments can help shift perceptions and promote a fairer allocation of resources and opportunities.

Analysis of Investment Trends in Women-Led Startups

Venture Capital Financing

Venture capital funding has long played a role, in supporting the growth of startups and enabling them to expand. However, female-led startups often face challenges when trying to secure venture capital investment. These disparities and challenges are not due to any lack of potential or success on the part of these businesses. Stems from embedded biases within the investment sector as we’ve mentioned above.

Based on information from PitchBook, venture capitalists closed over 2,000 deals $30 billion with tech companies founded by women in 2021. This represents an 83% increase in value compared to the previous year. Although this positive trend is encouraging, it still only accounts for a portion of venture capital investments made during that time frame. Furthermore, most of these investments were directed toward established startups highlighting a gap in early-stage funding opportunities, for female-led ventures.

Furthermore, research has shown that businesses with diverse leadership teams tend to outperform their homogeneous counterparts. A study by McKinsey & Company found that companies with gender-diverse executive teams were 25% more likely to have above-average profitability compared to those with male-dominated leadership.

Despite these positive developments, there is still a long way to go in achieving equal access to VC funding for women entrepreneurs. The gender gap persists not only in terms of investment dollars but also in the representation of women in decision-making positions within VC firms.

Only 5.9% of U.S. venture capital deals include all-female founding teams or solo female founders, while 15.2% involve mixed-gender founding teams, showing the underrepresentation of women in these deals, according to Harvard edu data.

To truly address the systemic biases and barriers faced by women entrepreneurs in accessing VC funding, a more comprehensive approach is needed. This includes increasing diversity at all levels of the investment community, from decision-makers to mentors and advisors. It also involves promoting policies and practices that promote equal opportunities for women-led businesses and providing support and resources.

Increasing Recognition of Women in Business Globally

Economic Impact

In the US, women-led businesses added $3 trillion to the economy and employed 23 million people, highlighting their significant role in the macroeconomic landscape.

Source: Gitnux market data

Investing in female-led enterprises is an economic decision as well as a step towards gender equality. Diverse viewpoints and innovative leadership approaches contribute to the market’s creativity and variety. These companies frequently place a strong emphasis on social impact and sustainability, which promote long-term financial benefits and healthier communities. Supporting women entrepreneurs can also significantly increase GDP growth and job creation since diverse leadership is associated with higher productivity and better financial results.

• For instance, Bumble, a dating app where women make the first move, exemplifies the success that can be attained with women at the helm. Launched by Whitney Wolfe Herd in 2014, Bumble went public in February 2021, marking Herd as the youngest female self-made billionaire. According to a Forbes report, Bumble’s IPO was valued at $13 billion, showcasing the immense potential of female-led enterprises.
• Similarly, Stitch Fix, founded by Katrina Lake in 2011, revolutionized personal styling through data science. In its 2017 IPO, Stitch Fix was valued at $1.4 billion, with Lake becoming the only woman to lead an initial public offering in technology that year. She famously held her son on her hip during the NASDAQ opening bell ceremony, a powerful image that became a symbol for working mothers everywhere.

Innovation and Diversity

McKinsey’s extensive research highlights a connection, between having leadership and the likelihood of companies surpassing their industry counterparts. This link is attributed to factors in diverse teams, such as a wide range of perspectives a deep understanding of global markets and an improved capacity to adapt to evolving consumer needs.

A diverse team serves as a melting pot for creativity, where different experiences and viewpoints come together to nurture a culture of problem-solving and uniqueness. This diversity goes beyond gender to include aspects like age, race, cultural heritage, and cognitive variations. By promoting ways of thinking organizations often find themselves leading the way, in innovation exploring new territories, and cultivating ideas that appeal to a wider audience of consumers.

Furthermore, companies led by women and diverse teams have shown not only an ability to innovate but also an exceptional knack for identifying and entering new markets, thereby creating fresh streams of revenue. These firms are adept at spotting underserved or completely overlooked segments and devising products and services that meet these niches’ unique needs. This keen market insight, coupled with a predisposition towards empathy-driven design, means that businesses that champion diversity are often more aligned with their customer’s evolving needs and are, therefore, more agile and resilient in the face of disruption.

In essence, the imperative for diversity is not solely a matter of equity—a moral compass by which firms might steer—but a strategic asset, an indelible mark of future-forward companies that lead rather than follow.

Success Stories of Women-Led Startups

Sue Siegel’s Journey from Genomics to Groundbreaking Tech Ventures

Cristina Junqueira co-founded Nubank in Brazil with the vision of simplifying the banking experience and making it more accessible to all Brazilians. Nubank’s rapid rise to become one of the largest digital banks in the world showcases Junqueira’s success in disrupting the traditional banking sector. Her focus on customer experience, innovative use of technology, and commitment to reducing bureaucracy allowed Nubank to offer a range of financial services that resonated with millions of customers. Junqueira’s role in Nubank’s expansion and her impact on the fintech industry highlight the power of innovative thinking and persistence in challenging established norms and creating meaningful change.

Naomi Kelman: From Founder to President of a Multinational

Naomi Kelman is a figure whose leadership and innovation have left a lasting imprint on the healthcare and wellness industry. Formerly at the helm of Blink Health and having played a pivotal role in the successful launch and expansion of innovative products at Novartis and Johnson & Johnson, Kelman’s expertise lies in bridging the gap between technology and healthcare. Her focus on leveraging digital platforms to improve access to healthcare services has significantly enhanced patient experiences. Kelman’s strategic vision for integrating technology with traditional healthcare models emphasizes her commitment to modernizing healthcare delivery and making it more consumer-friendly. Her contributions to the industry serve as a powerful example of how visionary leadership can drive tangible improvements in both service quality and accessibility.

Resources and Networks: Supporting Women-Led Startups

• She Means Business: A Facebook initiative providing women with the tools, training, and resources needed to build and grow their businesses online.
• Women Who Startup: A global network dedicated to empowering women entrepreneurs, offering events, a community, and educational resources.
• Astia: An organization that levels the playing field for women entrepreneurs by providing access to capital, networks, and expertise.
• WEConnect International: A global network that connects women-owned businesses to qualified buyers around the world.
• Tory Burch Foundation: Offers programs and initiatives aimed at supporting women entrepreneurs, including access to capital, education programs, and digital resources.
• Golden Seeds: An investment firm focused on early-stage women-led businesses.
• Women’s Business Enterprise National Council: The largest certifier of women-owned businesses in the United States, connecting them to procurement opportunities with corporations and government agencies.
• Female Founders Fund: An early-stage venture fund investing in female-founded tech companies.
• All Raise: A non-profit organization dedicated to accelerating the success of women and underrepresented minorities in the tech industry through access to resources, mentorship, and community
• SheWorx: A global platform dedicated to closing the funding gap by empowering women entrepreneurs to build and scale successful businesses.
• The National Association of Women Business Owners (NAWBO): Offering a wide range of resources, from networking opportunities to educational platforms, NAWBO has been instrumental in advocating for women business owners across the U.S.

Towards a Future of Equal Opportunity

Promoting gender diversity and inclusivity in technology and entrepreneurship is not only a matter of equitable practice but a strategic imperative for innovation and growth. By taking active steps toward implementing the measures outlined above, organizations can build a more inclusive industry that harnesses the full potential of all its members.

Cogent IBS, a globally recognized tech company, is dedicated to fostering workplace inclusivity and gender diversity. It’s time for all stakeholders, from governmental bodies to private enterprises, to commit to concrete actions that propel the advancement of women in tech and entrepreneurship. We urge you to evaluate your current practices, adopt these strategies, and become champions for change. Together, we can create an ecosystem that not only values diversity but thrives because of it.

By Sarra Turki