Where Women Startup Founders Are Gaining Ground

The share of VC-backed startups with women founders has grown dramatically, but Silicon Valley lags behind other hubs.

Despite recent progress, the baseline facts about women-founded startups remain startling. Just 2.5 percent of all venture-capital-backed startups have an all-female founding team. Only 9 percent of the venture capitalists investing in tech startups are women. And even today, only slightly more than one-fifth of all American VC investment goes to startups where at least one of the founders is a woman.

To put this in context, in the United States, women make up more than half (52 percent) of the highly skilled creative class; comprise more than one-third (36 percent) of business owners; and make up 30 percent of all high-tech employment.

Although the number and share of startups founded by women in the United States has improved dramatically, Silicon Valley, the nation’s largest startup hub, lags badly compared to other hubs both large and small.

That’s one key takeaway of a major new study of women-founded startups by Ian Hathaway, who leads research at the Center for American Entrepreneurship and with whom one of us (Richard) co-authored a major study of venture-capital-backed startups across the globe this past fall.

Using data on VC investment from PitchBook, Hathaway tracks the share of startups around the country with at least one woman in the founding team over the period 2005 to 2017. (The startups are distributed across industries, with the three main ones being tech, consumer products and services, and healthcare.) Specifically, Hathaway looks at VC-backed “first financings” of startups—or when venture capitalists initially backed these companies.

The share of venture capital going to women-founded startups tripled between 2005 and 2017, rising from 7 percent to 21 percent.

That’s a big improvement, but the numbers are still low. And the low level of VC investment in women-founded startups is especially disconcerting because, unsurprisingly, women-founded startups perform as well as non-women-founded startups. The share of women-founded startups that go on to raise additional rounds of capital—a key marker of success—is similar to those of non-women-founded companies. The same share of women-founded startups and startups that had no women founders (52 percent over the study period) raised a second financing round within three years. (To look at second and third financings over the study period, Hathaway broke down the sample of startups into cohorts, 2005–2014 and 2005–2012.)

Startups with a woman founder had a slightly higher rate of raising a third round of funding after five years than startups without a woman founder: 37 percent versus 36 percent over the study period.

Learn more at CityLab.