The reason why most VCs don't invest in women-led startups is much simpler than many think

At every conference, on every panel, year after year, the same tech leaders ponder the same question: Why don’t more women receive venture capital funding?

The participants stroke their chins and furrow their brows.

Perhaps, they muse, it’s due to societal gender norms that discourage women from pursuing entrepreneurship. Maybe there’s a lack of access to childcare that makes it harder for mothers to launch startups. Some suggest women simply lack the confidence to pitch VCs. Others point to disparities in STEM education.

Round and round the conversation goes, diagnosing an array of potential culprits — everything, that is, except the elephant in the room.

Because here’s the simple, unvarnished truth: Venture capitalists, by and large, choose not to fund women.

It’s a fucking decision.

It really is that straightforward.

You can attend these panels and listen to the hand-wringing, but when the time comes to write cheques, the money overwhelmingly flows to companies founded by men.

It’s not that the ideas pitched by all-male teams are inherently superior. It’s not that there aren’t enough talented women entrepreneurs out there.

It comes down to the decisions made by the individuals controlling the purse strings of venture capital — a group that is itself dominated by men.

In 2022, companies with solely female founders received a paltry 2.1% of all U.S. venture capital. Mixed-gender founding teams fared slightly better, pulling in 16.3% of the total. That leaves approximately 81.6% of VC dollars that went to companies founded exclusively by men.

Now, one could argue that maybe there are simply far fewer female founders seeking VC funding in the first place. But the data doesn’t support that notion. In 2019, women made up 28% of all U.S. entrepreneurs — a significant chunk, even if not yet at parity. And women are starting businesses at a faster rate than men, with a 16.7% growth in women-owned businesses between 2012 and 2019 compared to 5.2% growth for male-owned businesses.

There’s clearly no shortage of ambitious, capable women starting companies. The problem lies squarely with who venture capitalists deem worthy of backing. And time after time, the verdict is men and more men.

Some VCs attempt to justify this by claiming that men simply pitch better business ideas on average. Famed investor John Doerr of Kleiner Perkins once said the firm looks for ‘white male nerds who’ve dropped out of Harvard or Stanford.’ The implication is that this narrow archetype produces the best startup concepts.

But this mindset becomes a self-fulfilling prophecy. If you only seriously consider founders who fit a particular profile, of course you’ll keep funding similar people and ideas. It’s a myopic view that overlooks the breadth of valuable innovations women could bring to market if given equitable access to capital.

Playing it safe

Other VCs may shrug and claim their hands are tied, because their limited partners (the institutions and individuals whose money they invest) prefer to play it safe with founding teams that look like past successes. It’s an odd abdication of responsibility from firms that fancy themselves bold risk-takers. If a VC can convince investors to gamble millions on an untested 20-year-old, surely they can make the case for backing a founder who just happens to be a woman.

The cruel irony is that women-led startups tend to produce better returns than their male-led counterparts. Startups with at least one female co-founder generate 10% more revenue over a five-year period. Women-led tech companies achieve 35% higher ROI and 12% higher revenue than male-led businesses when venture-backed. Boston Consulting Group found that for every dollar of funding, female-founded startups generated 78 cents in revenue, compared to just 31 cents for male-founded companies.

The evidence is clear: Women-led startups perform incredibly well, yet VCs still pass them over while plowing cash into less effective male-led ventures. It’s not a pipeline problem. It’s not an education problem. It’s not an industry culture problem. Those are all just convenient excuses.

The dearth of VC funding for women is caused by VCs consistently choosing to fund men instead. Every inadequately researched hunch that leads an investor to say, “This team of guys just feels right.”

Every warm fuzzy feeling of camaraderie that results in men backing founders who look like younger versions of themselves. Every acceptance of the tangential claim that “there just aren’t as many investable women entrepreneurs out there.”

Those repeated choices made in VC conference rooms and coffee chats are what cement the gender financing gap.

This disparity won’t magically fix itself. It will change when venture capitalists muster the will to confront their biases, look beyond the usual male-dominated networks, and make the choice to fund excellent women-led ventures in serious numbers. And those who do will likely reap handsome rewards.

Until then, expect more demoralising statistics and limp diversity efforts. Expect more repetitive conference panels that studiously avoid stating the obvious.

Because acknowledging the simple truth — that the solution lies in VCs’ own hands — would require them to take responsibility.

And that’s a choice too many are too piss-weak to make.