Funding drops for women entrepreneurs

Despite gains in early-stage investing, later-stage capital is still elusive for women entrepreneurs

What you probably already know: Women entrepreneurs have seen some gains in recent years when it comes to early stage investments such as seed rounds, but when you look at later stage investments, the percentage of women getting funded has actually decreased. That means women who are seeking later stage capital to accelerate growth at a critical time for the business are not able to get the funding necessary. The Wall Street Journal took a look at the issue and pointed to the increase in women-led funds that are backing early stage startups. But when those companies grow beyond that early stage, the traditional venture and private equity firms aren’t stepping up. That has consequences for the startups, as well as the early stage funds, which then struggle to get returns on their earlier investments and continue to fund new startups.

Why? Women-led venture funds had an average fund value of $41 million in 2023, compared to $244 million for the average venture fund, so by definition these smaller funds have to cut smaller checks to spread out their risk. But the funds themselves are also struggling to raise and, according to Pitchbook, this year is on track to have the fewest new funds created since 2015. Some of that, experts suggest, ties to the pushback against diversity, equity and inclusion investments, or impact investing. Lawsuits that target funds for their DE&I policies, like the Fearless Fund suit, make things even harder.

What it means: A week ago, crowdfunding site IFundWomen announced plans to rebrand because the corporations that were backing the organization have been pulling their support. “Our grants business is dying because of our brand name,” said IFundWomen CEO and Founder Karen Cahn in a LinkedIn post. “Despite our inclusive business operations, the word ‘WOMEN’ in our name deters corporations from partnering with us.”

What happens now? Leaving women out leaves money on the table. Research from Harvard’s Kennedy School Women in Public Policy program found that venture firms with 10% or more female investing partner hires make better investments and have 1.5% higher returns and nearly 10% more profitable exits. It’s been proven again and again that diverse teams lead to better outcomes, but until traditional venture firms make it a priority, women founders and the smaller venture funds that are backing them will be stuck on the sidelines.

One more thing: While it has been a tough year for startup funding in general, AI startups are still getting some attention and 35 of them have raised more than $100 million. Of those, World Labs’ Fei-Fei Li and Scale AI’s Lucy Guo were the only women founders whose companies made the list.