Majority of Venture Capital funding goes to men rather than female entrepreneurs, a research analysis

• Aparna Sreevalsan
• 31 January, 2023

Feature Article by David B. Horne

ON both sides of the Atlantic, the share of funding to female founders fell – again – in 2022. The amount of funding invested in all-female teams in the USA peaked in 2019 at 2.6 per cent. It has dropped to 2.0 per cent in 2022. The share in Europe peaked at 2.0 per cent in 2020 and has since collapsed to just 0.9 per cent.

It is a similar story around the world. This reduction in funding comes despite reports like the Alison Rose Review of Female Entrepreneurship, the UK Treasury’s Investing in Women Code, and studies from Boston Consulting Group and McKinsey which prove that female founders and diverse teams outperform their male counterparts.

When you add ethnicity into the mix, the picture looks even worse. For example, in the UK between 2009 -‘19, just ten black female founders received investment. It’s scandalous.

The truth is the vast majority of venture capital (VC) funding goes to white men. Why?

I have been researching this issue for the last four years. It all started when I was speaking at an event about fundraising in early 2019.

After my talk a woman came up to me and asked: “Why does so little funding go to female founders?” I told her I didn’t know and would find out. It turned out to be a life-changing question.

The first report I found was UK VC & Female Founders, produced by the British Business Bank. They looked at every venture capital deal in the UK in 2017 and found that less than 1 per cent of VC money went to all-female teams, with 10 per cent going to mixed gender teams and more than 89 per cent to all-male teams.

The 2022 data referred to above shows that five years later nothing has changed. In the intervening period, I have run events around this subject, both in-person and online, and attracted a global audience of more than 1,500 entrepreneurs in more than 65 countries who identify as female and/or non-white ethnicity.

They all tell me the same story: the playing field is not level. Another fascinating piece of evidence, also from the British Business Bank, is the report Alone, Together, which looks at entrepreneurship and diversity around the UK.

It found that business owners who identify as Black achieved median revenue levels that were nearly 30 per cent less than those who identify as White, with Asian and Other Ethnic Minority entrepreneurs coming in between.

Let’s return to the core question: why does most funding go to white men? There are three answers:

1. White men control most of the money
2. Cognitive bias
3. The VC system is opaque and difficult to navigate

White men control most of the money – A great example of this comes from Morningstar, the financial research company, which in 2019 looked at all the fund managers of listed investment companies in the UK. They found that more funds are run by men named David than there are female fund managers in total and concluded by saying: “It’s a stark reminder of the lack of diversity across the fund industry, which is often accused of being ‘pale, male and stale’.”

Cognitive bias – studies show that cognitive bias has an impact of how people observe, tabulate, and analyse data, as well as how they reach conclusions. In the case of fundraising, there is evidence that the questions asked of male and female founders in pitching competitions was significantly skewed, with 67 per cent of questions asked of male founders being promotional – e.g., tell me how you are going to double your market penetration – and 66 per cent of questions asked of female founders being preventive – e.g., tell me how you are going to protect your customers from the competition.

The VC system is opaque and difficult to navigate – Many entrepreneurs complain that navigating the VC industry is incredibly difficult. Some firms have a single page website with no information at all. It is simply a landing page.

Many more allow entrepreneurs to apply by uploading a pitchdeck and completing an online form, but most of the time this goes into a black hole, and they never hear anything again. If only there was a magic wand to address these issues and ensure a level playing field for every entrepreneur, regardless of their gender, race, or any other characteristic. Instead, it is going to take concerted effort on many fronts over an extended period of time. I’m up for the challenge.

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David B Horne is Founder of Funding Focus, a social enterprise, and Co-Founder of Funding Focus Investment Trust plc, which is in process of seeking a London Stock Exchange listing to invest in female and other underrepresented entrepreneurs. David is author of Amazon #1 bestseller Funded Female Founders and the award-winning Add Then Multiply. His TEDx talk “The Fight for Fairer Funding” has 2.6 million views.