Women-Founded Start-Ups Raise More Capital Than Male-Only

Median venture funding raised by round, where women are included vs. men-only. Click on image for full-size view. (Kauffman Fellows)

4 Oct. 2019. Start-up enterprises founded or led by at least one woman on the team raise more capital than comparable start-ups founded by men only. That finding is among the results of an analysis published this week by the Ewing Marion Kauffman Foundation in Kansas City, Missouri.

The paper, by Collin West, a founder and partner of the Kauffman Fellows Fund, and Kauffman data scientist Gopinath Sundaramurthy, reports on progress of women-led start-up companies in the U.S. The Kauffman Foundation conducts research on entrepreneurship and supports educational initiatives in entrepreneurship at all levels in the U.S. In addition, the Kauffman Fellows is a two-year intensive training and mentoring program for promising entrepreneurs.

West and Sundaramurthy analyzed data on more than 90,000 venture-backed start-ups beginning in 2001. The researchers reviewed employment records at these new enterprises, particularly founders, top (“C-level”) executives, and board members. They found that of more than 400,000 senior employees at these companies, about 60,000 or 15 percent, are women.

Since 2001, the percentage of women in start-up enterprises reaching their first round of financing rose from 4 percent that year to 22 percent in 2018, a large percentage increase, but still nowhere near an equal distribution. “This is progress,” says Tammi Jantzen, a former Kauffman Fellow quoted in the report and co-founder of Astarte Medical, a health care start-up in Yardley, Pennsylvania. “But given that this is over a 17-year period and we are very far from parity. We have a long way to go.”

Women founders make up nearly a quarter (23%) of consumer service start-ups during this period, and about one in five (19%) new health care companies. But women entrepreneurs are found in only about one in 10 (10%) of manufacturing start-ups. New companies based on computer science make up about half of all start-ups since 2001, with women among the founders in 14 percent of those enterprises. Across different geographic regions in the U.S., the percentage of women founders varies from 13 percent each in the Southeast and Southwest to 18 percent in the Northeast.

The disparity between men and women in numbers of founders and top executives among start-ups continues with investment dollars raised, but only to a point. Companies started by male-only teams outraised start-ups with at least one woman founder by wide margins at all five venture funding rounds, from seed to series D. But for companies with women in top executive positions, the gap between all-male and women-included executive teams disappears by the fourth venture round, and women-led firms outraise male-only companies by a small margin in the fifth venture round.

Total venture funding by round for women-included versus men-only start-ups. Click on image for full-size view. (Kauffman Fellows)

When looking at the median amounts of venture capital raised per company, women-founded and -led start-ups largely outraise their male-only counterparts. (See the chart at the top.) Start-ups founded by at least one woman raise about as much venture capital in seed and first rounds, but companies with one or more woman founders outraise male-only start-ups from the third to fifth rounds. In start-ups where women are represented in top executive ranks, these companies outraise male-only executive companies at each funding stage, but particularly in the later rounds.

The authors hypothesize that having women as founders or top executives broadens the outlook of start-up companies, encouraging new enterprises to consider different kinds of projects, and enabling the companies to (literally) cash-in on the presence of women, when in earlier years only men made the decisions. “Diversity is vital to startup growth,” says Lisa Feria, CEO of Kansas-based Stray Dog Capital in the report, “as it provides a greater pool to generate ideas from, and allows for a greater understanding of potential consumer models.”

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