Given the opportunity, female founders go out there and prove themselves. The good news: More are getting that opportunity.

Yes, venture-funded entrepreneurship remains largely a Y-chromosome game. In 2017, startups with at least one woman founder received just 16 percent of the more than $80 billion invested in U.S. venture-backed companies, according to PitchBook. Startups with all women founders scored a measly 2.5 percent. Inside venture firms, just 9 percent of general partners are women.

However, first financings--which represent new companies entering the venture-backed pipeline--rose to 21 percent for women-founded startups in 2017, from 7 percent in 2005, according to a new study from the nonpartisan Center for American Entrepreneurship, which drew largely on PitchBook data. The large recent uptick for women-founded startups occurred at a time when younger tech firms are hiring more women--a potential on-ramp for entrepreneurship, says Ian Hathaway, research director at the Center and author of the study.

Gauging the pipeline of woman-founded startups is important. But Hathaway also wanted to track businesses over time. Lacking sufficient metrics on private companies, he used the ability to raise additional rounds as a proxy for growth. He found that female-founded startups proceeded to second and third funding rounds at numbers comparable with their male-founded counterparts. (In both cases, 52 percent of startups raised second rounds within three years.)

Data on exit valuations is also tough to come by. But, on the basis of a limited analysis, Hathaway believes that male- and female-founded companies produced similar numbers. Results diverged more on acquisitions, however. Ten years after receiving initial investments, 26 percent of female-founded companies had been acquired, compared with 32 percent of male-founded companies. (Statistics for IPOs, by contrast, are virtually identical.) Separate research from the University of Alberta suggests that that disparity disappears when early-stage investors are women. Female VCs may be better at identifying promising women founders or better at advising them, or both, that study speculates.

All of which reinforces the importance of more women VCs. There remains, of course, a chicken-egg problem. People in situations of high uncertainty tend to back people similar to themselves, so more female investors would likely produce more female founders. But VCs often turn to investing after successful careers as entrepreneurs--careers launched with VC funding. Fortunately, Hathaway says, "male investors are being exposed to more female founders, and that will remove some of that uncertainty."

Investor bias, according to research from Columbia University, accounts for just a third of the gender disparity in high-growth startups. The rest of that gap derives from social cues and constraints that discourage women from embarking on the kinds of high-growth ventures that attract VC funding in the first place.

"Just having more women as general partners in venture firms will improve conditions. But we have to change the way society views the role of women in the workplace and at home," Hathaway says. "We have way more work to do, and that is going to be much harder."

Published on: Feb 19, 2019