Creating a business starts with a dream – a dream to fix, improve or create something new. Unfortunately, for many women and minority entrepreneurs, the funding they need to scale their companies is more difficult to secure than their white male counterparts. Awareness of this inequality came to the fore in 2020, fueled by a national push for social justice, transparency and impact investing. Two years later, have we made any progress in bridging the funding gap?
Nationally, the numbers paint a grim picture. In 2019, women-led startups raised just 3.4 percent of all venture capital funding. In 2021, that number dropped to roughly 2 percent of the record $330 million in U.S. VC funding. So even though there is more capital, early-stage companies led by women are getting even less of it than before the pandemic.
And it’s not because they can’t perform: Data shows that businesses led by women have continued to exit faster and at higher valuations throughout the pandemic than those run by their male counterparts.
Awareness of the problem is growing. “We’re at that stage where we see there’s a problem and we’re having discussions about it,” said Tiffany Ricks, founder and CEO of Dallas-based cybersecurity company HacWare, adding that there’s been increased interest in mentoring black women founders. “But that’s where it stops,” she says.
Ricks closed a $2.3 million seed round for HacWare in April. The lead investor in the round, the CEO behind Elevate Capital, expressed a vision for investing in companies led by black women. “What he’s seen is that with the companies in his portfolio, they’ve outperformed a lot of the other groups,” Ricks says.
She is among the few female founders in traditionally male-dominated fields to receive investment from a male-led firm. Another is Brenda Stoner, CEO of Dallas-based delivery startup Pickup, which closed a $3.5 million Series A round in April 2020 and a $15 million Series B round in March 2021.
They are among the roughly 16.6 percent of working women in America who become entrepreneurs, compared to nearly 18.3 percent of working men who do. Of those entering investor rooms, women in retail and female-dominated spaces are often more likely to receive funding than their STEM-focused counterparts; investing in a woman in STEM may seem riskier to a traditional male investor who has seen fewer examples of success.
Focusing on returns
This lack of representation also exists on the investor side, and is often cited as a factor in the continued lack of capital in funding. “One of the things we need is to find more female venture capital partners, GPs and LPs, because the more people at the top look at these companies, the more willing they will be to invest in them,” says Laura Baldwin, who heads the Dallas division of Golen Seeds.
In this area, the statistics are a little more promising: According to New York Times, in 2019, 12 percent of general partners at venture capital firms were women, and there were 740 female angel investors nationwide. In 2021, those numbers have grown to 15 percent and 1,000 angel investors.
There are slower gains in wealth management, with the proportion of women representing 11 percent of managers in 2020 increasing to 11.8 percent in 2021. “It’s a very big gap to reach that 50 percent,” says Eva Yazari, leader of Dallas-based Impact VC firm Beyond Capital Ventures.
Thinking Local: Impact Investing
Eva Yazari, who heads Dallas-based venture capital firm Beyond Capital Ventures and its subsidiary Beyond Capital Fund, invests in early-stage companies in India and East Africa. It is a champion of impact investing, seeking to generate social benefit alongside financial return. Of the three companies her firm invests in, one is led by a woman. “I would call investing in women an opportunity,” she says. “I would say the same thing about people of color, simply because I believe we are in networks and rooms and understand products and services differently. … It’s also an opportunity to generate impact because we know that women and people of color allocate their attention to other women and people of color at a higher rate than white men.” More people are taking advantage of this opportunity in emerging markets than in the country, Yazari adds. “There’s probably been a little bit more progress in emerging markets, simply because a lot of the investors that are looking at emerging markets are probably more impact-oriented.”
The number of funds investing in female startup leaders in North Texas has increased over the past two years, though Yazari believes the effort is a small step. “They’re not at scale when we compare them to larger pools of institutional-quality capital,” she says.
Baldwin cites as an example a new fund, RevTech Ventures, which targets retail startups run by and focused on women. Impact Ventures, whose latest cohort of accelerators is comprised of nearly 70 percent women-owned businesses, is another. “I don’t think it was intentional,” Baldwin says. “These were the highest quality companies they saw.”
In general, steps are being taken to address the funding shortfall, but so far they have preceded the check-writing phase. It may take more time to have an impact, but for now progress can be down to the enlightenment of male investors. “I think it’s a matter of educating some of these guys: It’s not just good for women, it’s good for business,” Baldwin says.
Ricks adds that an even greater focus on early-stage ventures would be an improvement — making riskier investments and realizing the dreams of female entrepreneurs. “I just think we need to be a little bit more of a dreamer in Dallas, where we look at the team and see if that team has built something before,” she says. “Do they have the ability to do that? And if so, then we’re betting on it.
Kelsey J. Vanderschoot came to Dallas by way of Napa, Los Angeles, and Madrid, Spain. A former teacher, she joined the…