More Women Than Ever Seek Startup Capital, But Barriers Remain

In 2009, only 9.5 percent of venture-backed startups had a female founder, according to a research by CrunchBase. By 2014, that figure had almost doubled, reaching 18 percent. During that period, the absolute number of companies with a female founder quadrupled. More women are also seeking early stage funds. The University of New Hampshire's Center for Venture Research (CVR) reports that more than a third of entrepreneurs seeking angel capital in 2014 were women. Despite this progress, women entrepreneurs remain underrepresented in high-tech entrepreneurship. A recent academic article found that women often have to rely on their technical resumes and personal referrals to overcome the biases of investors.

Gené Teare and Ned Diamond of CrunchBase drew on the organization's database of venture investment to examine gender representation in the 14,341 U.S.-based startups that received funding during the 2009-2014 period. The authors note that CrunchBase did not track the gender of founders prior to March, and thus had to retroactively fill in the missing data.

Overall, about 15.5 percent of all U.S. companies that received venture capital during that period had at least one female founder. Women's presence in the startup scene appears to have grown both steadily and significantly during that five-year period. Only 117 companies had a woman founder in 2009, which grew to 555 by 2014. Additional investigation revealed that Las Vegas had the nation's highest share, while New York City had the largest number of women-founded companies. Silicon Valley, including San Jose, Palo Alto and San Francisco lagged far behind New York on both fronts and behind the national average.

The annual UNH CVR report on U.S. angel capital activity notes that the number of women seeking angel capital hit an all-time high in 2014. Women-owned ventures respresented about 36 percent of all companies seeking angel investment, up from 23 percent the previous year. This surge of women entrepreneurs seems to have led to a slight decrease in the percentage of women entrepreneurs who actually received funding. In 2013, 19 percent of women entrepreneurs secured angel backing, which fell to 15 percent in 2014. UNH CVR Director Jeffrey Sohls hypothesizes that the decrease in funding could be the result of more women entering the market, though that suggests that there is a limited pool of funding available to women entrepreneurs.

The number of women angel investors also grew in 2014, which may have helped encourage more women to seek angel backing. About 26.1 percent of angel investors were women in 2014, compared to 19.4 percent the previous year. In Forbes, Geri Stengel noted that the expansion of the capital marketplace for women entrepreneurs and investors appears even more remarkable when observed over a 10-year span. Between 2005-2014, the number of female angels grew by 318 percent, while the number of male angels grew by only 13 percent. During that same period, the number of male entrepreneurs seeking angel funding increased by 25 percent, while that figure grew by 635 percent for women.

Though women entrepreneurs and investors are increasing their numbers in the investment capital market, they remain a minority and face a number of institutional barriers. A recent study found that investors' bias toward male entrepreneurs remains significant. In Gender and Venture Capital Decision-Making: The Effects of Technical Background and Social Capital on Entrepreneurial Evaluations, Justine Tinkler found that investors frequently rate women entrepreneurs as having less leadership potential than their similarly qualified male counterparts. Tinkler found that this was particularly true for women entrepreneurs without a technical background. Women without a technical background were rated significantly lower than men without a tech background. Women with tech experience rated lower than men with tech backgrounds, but the difference was less severe.

Tinkler also found that personal referrals were more important for women entrepreneurs than their male counterparts, as reported by the Wall Street Journal. When asked about the relative importance of different factors in their decisionmaking on a 1 to 6 scale, investors rated personal referrals a 5.1 for women and a 4.6 for men.

Tinkler suggests that women use this knowledge to overcome biases in the system. For policymakers, however, it suggests that there may be more work to do to level the playing field for all entrepreneurs.