Who Receives Financing & Venture Capital in America?

 

98% of Venture Capital funding goes to men.

 
“Women are awarded a pathetic 2 percent of the billions of dollars invested by venture capitalists every year.
”
— Finance Editor Martha Burke, Sept 2021
“If you are a venture capitalist, you are almost certainly a man. But you would do well to know that your best chance to outperform the market is to invest your money in a company led by a woman. [However], four out of five VC firms [in the US] have never employed a woman in a senior investment role.
”
— World Economic Forum, Aug 2020
“Women who venture into entrepreneurship are not poised to get a fair deal. … Bias within the VC industry is preventing funds from being allocated to the best investment opportunities.””
— Kamal Hassan, Monisha Varadan, and Claudia Zeisberger
in the Harvard Business Review, Jan 2020
 
“Venture capital funding overall has surged in recent years, but the numbers haven’t leapt forward for female founders at the same pace. Last year, companies founded solely by women garnered 2% of the total capital invested in venture-backed startups in the US.”
— Pitch Book, Feb 2022
 
 

How Venture Capital works:

There was a time in America when businesses started small, built locally, built a base of customers and revenue, and then sought funding to expand quickly.  Venture capital and private equity has only existed since the late 1950s and has seen three private equity booms – in 1982-1993, 1995-2000, and 2003-2007, each followed by a bust.  Today, the “venture capital” model of entrepreneurship is firmly established, especially for information and technology start-ups.  An entrepreneur has an idea, does a proof-of-concept, creates a presentation “deck” of the technology, markets and anticipated revenue, and shops it around to venture capital or other funding sources. VC firms may choose to invest in less than 1% of the start-ups who pitch them, if that.

The entrepreneurs who do get a round of funding, or subsequent funding, are often building their businesses – hiring & staffing, sales & marketing, research & development – out of the venture capital funds rather than out of existing revenues or even proven revenue streams. The goal is often to build the business to a certain point and sell it for a large multiple of its then-revenue.

The start-up entrepreneurs who receive these initial VC funding rounds are in the best positions to build something out of an idea or new technology and scale up quickly.  Those who don’t receive VC funds must go the slow route of a couple of people in a garage or a lab or meeting at Starbucks with laptops, while better financed peers often surge ahead and capture the opportunities in the marketplace.

98% of Venture Capital funding goes to men.

 

For Further Reading, the Power Percentage Editors recommend:

 

What will it take for women to get into the Power Percentage of Venture Capital Financing in the United States?

 
 
 
StemLydia Swan