Venture capital funding skyrocketed in 2020. But money paid to female founders fell 2.2%
When the pandemic hit the United States in March 2020, fundraising came to a brief halt in Silicon Valley. “People thought there would be a big pullback reminiscent of the dotcom era and the 2009 pullback,” says Pam Kostka, a Silicon Valley veterinarian and CEO of the All Raise organization.
But this break turned out to be short-lived. For much of the tech industry, the pandemic provided an unexpected boom as consumers and businesses flocked to work-from-home tech, delivery platforms and other newly relevant corners of the sector. Startups as a whole raised 13% more from venture capitalists in 2020 compared to 2019, for an annual total of $150 billion, as measured by PitchBook, a company that tracks venture capital industry data. risk and private equity.
With 2020 in the rear view, another result is clear: this boom has been unevenly distributed.
Despite the large funds that flowed to startups in 2020, companies founded solely by women received less investment than in 2019, both in pie and in total dollars. Companies founded by women raised $3.31 billion in 2020, or 2.2% of the total sum for the year, compared to $3.5 billion and 2.6% in 2019.
The same goes for co-ed founding teams, which raised $18 billion (12% of all venture capital dollars) in 2020, up from $18.43 billion (14%) the previous year. Men’s share of the pie, meanwhile, rose from 83.5% to 85.8%, totaling $128 billion.
Kostka, whose organization strives to support gender and racial diversity among startup founders and investors, blames a different kind of fallback. “Networking was more difficult,” she explains. “There was what I call the ‘known founder effect’.”
Investors, unable to connect face-to-face with new people in 2020, put their money behind familiar founders – those who are already in their networks or who they had backed at an earlier stage (29% of all funding went to later-stage deals last year, down from 25% in 2019). Stuck at home, investors were less likely to seek founders beyond their immediate website, a trend that tended to disadvantage founders who are women and/or people of color.
In number of transactions, the founders closed fewer transactions in 2020 (676) than in 2019 (709). This drop was in line with industry trends, as founders of all genders signed fewer deals overall, giving female founders a bigger slice of the pie by this metric alone. Women-only founding teams closed 6.6% of all deals in 2020, up from 6.3% in 2019.
The effects of year-to-year trends on women founders crystallized in the third quarter, when companies founded by men received the most funding of all quarters ($37 billion) and investment in businesses founded by women fell to its second-lowest level ($630 million). This quarter may have shown a lag effect, Kostka says, with results from previous months of the pandemic — the canceled March and April pitch meetings — bearing fruit.
Interestingly, it was at this time of year that the realities of the pandemic’s impact on women became clear in other segments of the economy. Some 865,000 women dropped out of the workforce in September, a month when children returned to school remotely, triggering a widespread childcare crisis.
It wasn’t all bad news in 2020. Everlywell, the home lab testing startup founded by CEO Julia Cheek, won the best deal of the year for a startup founded by an all-female team. The company, which became an early entrant in the coronavirus testing race, raised $175 million in a Series D round in December.
Another notable deal in 2020 belonged to Gro Intelligence, the artificial intelligence analytics platform for the agriculture industry co-founded by CEO Sara Menker. Menker raised an $85 million Series B round in December, one of the largest ever raised by a black female founder. Menker has two co-founders, Sewit Ahderom and Nemo Semret, so the deal falls into the mixed founding team category. (The round was announced in January 2021, but closed in December, per PitchBook.)
And All Raise, a nonprofit, raised its own funds to support its mission to diversify Silicon Valley – $11 million in November.
As evidenced by Everlywell and Gro Intelligence, the top deals of the year for women founders have moved away from consumer companies, which have dominated the top 10 in recent years. Kostka’s feelings on this trend are mixed. For one, women have often found consumer-focused startups, and many of these businesses, especially those not ready to cater to a stay-at-home lifestyle, have been hit hard in 2020.
On the other hand, the growth of investments in non-consumer businesses founded by women helps build investor confidence that women can succeed in these sectors. “It’s not just that the founders have brilliant ideas for consumer products,” Kostka says. “They have brilliant ideas for fintech, for business.”
An exception to consumer abandonment: Rent the Runway, co-founded by CEO Jennifer Hyman. The clothing rental business — a model that has been as shaken by the pandemic as any startup could be — began raising a $100 million Series G round in the spring that ended in the fall of 2020; this round was a combination of debt and equity through a fund managed by Ares Private Equity Group. The deal, however, was a downgrade, valuing the company at around $750 million, below its 2019 valuation of $1 billion.
The top 10 deals for companies founded by men in 2020 included Elon Musk’s SpaceX, fintech startups SoFi and Stripe, and now-defunct Quibi (Meg Whitman was CEO of that company, but Jeffrey Katzenberg was credited as as solo founder).
In a year that featured several notable exits in the public markets, including the explosion in the use of special purpose acquisition companies, or SPACs, only two U.S. companies founded solely by women exited, according to PitchBook, both through acquisitions. (The biggest outing was for Brynn Putnam’s fitness startup Mirror, which sold to Lululemon in June for $500 million.)
However, two notable releases are already planned for 2021; the January IPO of Poshmark, co-founded by Tracy Sun, and the impending IPO of Bumble, the dating app company run by Whitney Wolfe Herd.