Women-led U.S. startups attract just fraction of venture money

by Sebastien Malo | @SebastienMalo | Thomson Reuters Foundation
Wednesday, 26 July 2017 00:15 GMT

Stanford University students Fabian Bock (L) and Josephine Chen (R) present a semester project to a group of visiting venture capitalists during their Technology Entrepreneurship class in Stanford, California in this 2014 archive photo. REUTERS/Stephen Lam

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"What is the disconnect?"

By Sebastien Malo

NEW YORK, July 25 (Thomson Reuters Foundation) - Promising startups in the United States receive a shred of the billions of dollars investors pump into them when led by women, a major study found on Tuesday.

Between 2011 and 2013, companies with a female CEO received $1.5 billion of the $51 billion venture capital investors poured into those they deemed promising, or a mere 3 percent of available dollars, according to the study by U.S. researchers.

They also found that all-men teams were four times more likely to win venture funding than teams counting at least one woman among them.

Venture capital is money invested in small businesses thought to have high-return potential.

The findings published in the journal Venture Capital confirmed a pattern of historically low levels of venture funds flowing into women-led businesses.

A prior milestone study, the Diana Project, had found that venture capital injected in women-led companies never exceeded 4 percent of total funds invested between the early 1950s and the turn of the century.

In the new study, researchers examined nearly 7,000 U.S. companies that received venture capital between 2011 and 2013. They then identified companies with women on their executive team.

Just why women-led companies were recipient of less venture capital raised questions about the industry's inner workings, said co-author Candida Brush, a professor of entrepreneurship at Babson College in Massachusetts.

"What is the disconnect?" said Brush in a phone interview.

"My hypothesis on the disconnect is that women are not in the right network (or) they're either being put through a tighter screen," she told the Thomson Reuters Foundation.

The report's authors, who include other Babson College professors and an entrepreneurial consultant, found there was no significant performance difference between companies whose CEOs were women or men.

The ratio of male to female startup entrepreneurs is fairly equal, according to the 2013 Global Entrepreneurship Monitor's Global Report.

But the venture capital industry in the United States, where most leading venture capital firms are located, is 92 percent male, said Brush.

"Those are things that have to be looked at," she said.

Earlier this month, prominent Silicon Valley investor Dave McClure resigned from his position as a partner at the venture capital firm 500 Startups following allegations of sexual harassment.

McClure's resignation came after entrepreneur Sarah Kunst accused the investor of misconduct in a New York Times story.

(Reporting by Sebastien Malo @sebastienmalo, Editing by Ros Russell; Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women's rights, trafficking, property rights, climate change and resilience. Visit http://news.trust.org)

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