Women Entrepreneurs Are Much Less Likely Than Men to Attract Venture Capital Funding for Start-Up Businesses

By Roberta Attanasio, Forever Leaders Editor

The venture capital (VC) industry is a key driver of financing and success for innovative U.S. companies, and an engine of economic growth.  Venture capitalists provide funding to start-up businesses throughout the innovation life cycle, including development of prototypes, beta-testing, and beginning of commercialization.  In addition, they provide mentoring, strategic guidance, network access, and other support.

Photo credit: Steve Jurvetson, CC BY 2.0

Unfortunately, the VC industry.is plagued by a significant gender gap.  Notably, the proportion of women partners categorized as key decision makers in U.S. venture capital firms has declined from 10% to 5-8% over the last decade.  Not surprisingly, the receiving end is afflicted by the same problem, as shown by a 2014 analysis carried out by researchers leading the Diana ProjectThe Diana Project—a research program involving several universities—was started in 1999 to identify and influence the factors that lead to high-growth, women-led ventures in the U.S.  The 2014 analysis found that 85% of all venture capital–funded businesses had no women on the executive team, and only 2.7% of venture capital-funded companies had a woman CEO.

The same researchers carried out a new study (published on July 25, 2017) using a database of 6793 U.S.-based companies that received venture capital funding between 2011 and 2013.  The study results show that, although women have made progress in attracting venture capital, there is still a significant gender gap.

Indeed, businesses that received funding and had women on the executive team were fewer than 4% in 1999 but increased to 15% by 2013.  However, between 2011 and 2013, teams composed of all men were four times more likely to receive funding from venture capital investors when compared to companies with one woman or more on the team.  The gender gap was even greater when leadership positions were taken into account—97% of the total venture capital funding during the period studied went to companies with a man as the CEO.

The original Diana Project research was carried out in 1999 to figure out why fewer than 5% of start-up businesses receiving VC funding had women on their executive teams.  The common explanation was that women entrepreneurs were neither prepared nor motivated to start high-risk, high-potential businesses.  However, the Diana Project found that, in contrast to existing perceptions, many women entrepreneurs had the required skills and experience—yet, they were left out of VC networks, and seemed to lack the contacts needed to break through.

In a 2004 book, Candida Brush and her co-authors (Brush is one of the Diana Project founders, and lead author of both the new study and the 2014 Diana Project report) suggested that women needed to be proactive in order to progress in the venture capital arena and obtain more venture capital financing.  They also suggested that women needed to learn the language of finance or become more financially savvy, have “big dreams,” or start businesses in high-technology sectors, expand their networks, and craft their pitching style to be more like men.  The new study indicates that, despite following these suggestions, many women entrepreneurs have not been able to achieve the expected increased success in obtaining VC funding.  Clearly, additional changes are necessary to close the gender gap in VC funding.  But, what could these changes be?

The researchers propose a series of questions that should be answered by carrying out additional research.  These research questions fall within three categories:

1) Social networks, for example: Do women entrepreneurs have different network structures than their male counterparts?

2) Structural barriers, for example: How do institutional structures, practices, and policies influence venture capital decision-making?

3) Stereotypes and homophily, for example: Are women entrepreneurs stereotyped by venture capitalists as less likely to be successful?

Remarkably, the new study did not find any significant performance differences between companies with women CEOs and companies with men CEOs.  Thus, it is surprising that women are still, in large part, left out of the market for venture capital funding, both as CEOs and participants of executive teams.

Brush pointed out in the 2014 report that “There is an enormous untapped investment opportunity for venture capitalists smart enough to look at the numbers and fund women entrepreneurs.”

The reason to pursue this untapped opportunity is exemplified by Edith Dorsen in an interview for a recent article:  “Gender inclusive teams are better able to compete in the market, and therefore those companies will perform better financially. It’s a real opportunity that others have not fully grasped to make good returns.”

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  1. Reading the comments, the majority of my peers are not surprised and sadden by the article; I, however, am angry. We have to be productive and actively catalyze a change. I have an idea. I believe those who allocate venture capitalist funding should attend a workshop to point out certain prejudices/ stereotypes that hurt women. I believe this could work, because the men who attend will be more conscious of their decision making. An example of my thought would be if someone pointed out that you scrunch up your nose when you smiled; the next time you smile, you’ll remember the person’s comment, and you’ll be conscious of your nose position. The example I give is a negative one, but if people are consciously aware of the inequalities, they can make better decisions. Placing the blame on women for not working hard enough is not the answer. Women are the victims of this inequality; we should not be condemned for the actions of others.

  2. I’m saddened to hear that VC has had a loss of women in their ranks and because of that other women are suffering. The fact that there is clear correlation between the lack of funding to women entrepreneurs and the low number of women at the top of VC industries. It seems that the only way to actually help women get farther in business is to have other women there to help build each other up. As was stated above it seems as if the whole system is set up to keep women from progressing as they bow out after things get too difficult for them to continue. The fact that it was a surprise that men and women ran their businesses without significant differences shows just how biased the employees at VC industry are against women. I agree with the above statement I think we do need to start younger and tell little girls that they can create their own businesses if they want to, that their ideas are valid and their dreams are reachable if they try hard enough. I however think that we need to explain to them later that these goals ARE reachable, BUT that these little girls have to push past the bulk of bias against them to achieve that goal.

  3. This article affirmed the existing issue of gender gaps being present. It also described explicitly, the reasons leading to this conclusion in start-up businesses that can be seen across all fields. It is great that the women in executive positions increased to 15% but if there is no assistance from venture capitalists, it will continue to increase very slowly if at all. A theme I noticed from the research was that it offered tips women could do to overcome these issues such as building greater social networks. Why must women have to go the extra-mile if the experience and qualifications match? There is an obvious bias in the infrastructure of venture capital funding that should be researched and tackled rather than suggestions of tactics women need or should do to be more like men.

  4. I have been aware for some time now that there is a gender gap, but I was shocked to learn how big that gap was from reading this article. 85% of venture capitalist funded businesses were found to not have any women on the executive team. This number illustrates just how far us women have to go in order to get the same equality and rights as a man does. A particular reason why women are not at the top of a company, as the author of Lean In discusses, is because women simply do not make it that far. They bow out before they have given it their all, because they feel their all is not good enough. Some leave to have children and fear coming back from a long hiatus or feel they are inferior to their co-workers because they have a home life to balance that also takes priority. How are women supposed to climb the corporate jungle gym if we are not supporting them as they climb? These VC funded business want to be successful yet they miss entire demographic by not incorporating women’s ideas. If these businesses truly wanted to be successful for long-term financial and moral reasons, having a diverse group of people on board is critical. Everyone has different backgrounds and with that, comes new and creative ideas and a new understanding of one another. These businesses could significantly increase their profits and likability with the masses if they choose to integrate a more diverse range of people, especially women.

  5. It is sad but not surprising to hear that companies that are funded by venture capitals favor male CEO’S to a woman CEO. It is also not surprising that there are only 5-8% woman partners at a venture capital firm. This gender gap in employment at a venture capital firm is a major factor that is preventing aspiring women from entering the business world. We need more women to be in the top positions so they can influence the decision-making. The field of business is primarily considered as men’s club, and there is a bias against women in the field. We need to more gender inclusive teams that work in the top positions, so every gender’s interest is represented equally. We also need programs that prepare future entrepreneurs to take these high-risk jobs and be successful. I remember the first day of my women’s LEAD class we talked about the need to have more women working in higher positions and I now realize that that is very true.

  6. Unfortunately this article, such as many have said, does not surprise me. While reading, I have realized the dynamic transformation of my own personal thought process. Strong words such as inequality, gender gap, and low statistics no longer shock or hurt me. Instead, it sparks a train of investigation within myself; I seek to find how this can be mistranslated information. Is there a significant amount of woman truly seeking venture capital funding? Are we discouraged? Are we not bringing the necessities and confidence that our male counterparts are? This article resonates with me, because I have always been raised to “work twice as hard to receive half of what they have.” Therefore, I took this article as a wake up call. Women need to start demanding their businesses be taken seriously. At the end of the day, the only thing these investors desire is a profit, a profit grand enough that the risk of trusting a woman is minuscule and an afterthought. Questioning fairness is old and exhausting, because it is not there. No matter how high and low we search they are never going to reveal themselves. With that being said, how can we as women sew this gender gap up? Do we need to sit on executive boards with men and whisper into their ears, or do we need to make our own gender exclusive executive boards and show the boys, girls can hang too? At this point, we must find alternative routes to the kingdom of business. There is no question whether women have the capability of performing at the rate of a man as supported in the article that, “remarkably, the new study did not find any significant performance differences between companies with women CEOs and companies with men CEOs.” As women, we have the tools to become successful, but we must become innovative concerning their use. I want to challenge us to utilize this article to become creative in our approach to receiving what we deserve.

  7. I like that this article addresses the “why” of the VC gender gap. My first question is “how many women could be involved in these groups if they wanted? How many truly have the skills even if they do not have the network?” If the answer is far below the amount of men then I think therein lies the first step to achieving equality. This would take us back to the idea of encouraging it at a younger age. As soon as women are below 50% of the field, they are at a huge disadvantage because you are going to have to prove yourself so much more. I would think that most VC firms DO think having a woman on the team or especially being the CEO is a HUGE risk that they are just not willing to take because the whole industry is about risk and reward. The women who have been invested in are probably much smarter than your average person (male or female) and that was the only way they could be invested in because they proved there was more reward (for being a business genius) than risk (being a woman). Obviously, this isn’t fair at all because we shouldn’t have to push so much harder than men just to be successful but we need to convince the field that being a woman is not a risk. It’s just our gender and it does not define our business strategies.

  8. The large gender gap, despite no performance differences, doesn’t surprise me. In fact, it terrifies me. My first thought was that maybe there is such a large gender gap because women are seen is incapable when dealing with money. Traditionally, men handled the budget, not women. Dealing with money was a “man’s” job; a woman would be irresponsible with control over money. If this 1900s concept still rings true today, it is bad news for women. While there has been growth, there hasn’t been enough for women to make a change in this industry. Women definitely need to be more proactive when trying to venture into this industry, because it seems like it is very cut-throat. I think proactive women with big dreams of being an executive in this industry are the only women that will be able to make a change. A woman is incompetent until she proves competent, so only a woman with big dreams are going to put up with proving herself constantly. As sad as it is that women always have to prove themselves, I believe that this is the only way that more women can rise in this kind of industry. If women continue to prove that they are just as capable at handling money as men, I think there will be a large growth of female executives in the industry.

  9. I was not completely taken by surprise of the results when an experiment was ran on the 3 topics of social networks, structural barriers, and stereotypes, along with homophily. Even though people were expecting some ground-breaking, shocking difference between the way males and females go about these activities, it has unfortunately become a common-placed thing where women do not receive what they deserve,strictly because of sex. As they stated, women are less likely invited to take part in various marketing events. There needs to be a higher authority to recognize the talent of an individual regardless of factors such as the sex of the individual. They need to be equal and let the person be a “person”, allowing for the globe, on a bigger scale, to run the best of its ability.

  10. Reading this article made me realize that VC funding sounds like it wants to exclude woman and maintain itself as a boy’s only. It is 2017, and I can not understand why this gap still exists today. Doing more research, I have found that no one knows the correct reason on why VC funding does not praise women for their success. Some women leaders have explained that there is not a lot of women in the VC funding so obviously there is a lot of men who give it out to other men. I do not believe that the VC funding has a particular guideline it must follow for it to give out funding. Their structure is easy, if you are a guy you get help for success and if you are a woman you do not get it. I feel like if they did not see what gender was behind the company, the statics would be different. I feel like someone bigger then VC funding should step in and put a stop to this unfairness, and change the rules of not knowing the gender and giving out the funding solely based on the company he or she has created. Because every person no matter what gender, race, or sexuality you are they deserve to be treated equally.No questions asked.

  11. Reading this article cause a strong resignation in my mind for whom I knew my mother to be. As a 18 year old immigrants to America she within one week secured a job at McDonald’s. This was followed by simultaneously working at Miss. Winters and a hotel. The realization that the meager money she was making would not be enough to support her growing family set it. This prompted her desire to have her own medical training school and personal care home. She began taking the necessary steps to achieve her dream which contrary to the articles’ suggestion, my mother is a woman who has a “big dream”. She even took financial readiness courses at night. Finally, she opened up her personal care home and at its peak it coincided with the opening of the medical training school. Despite the many challenges she faced, she was highly motivated, proactive and confident in herself that she could make her dreams a reality. I always wondered what it was that motivated my mom to keep going even when people like the men in her life were telling her she’s wasting her time. Things like she needs to be in the house as a homemaker rather than running from bank to bank to finance business related things. Nevertheless, she is a testament to young girls as well as myself to find what motivates me.

    • Your mom sounds Amazing! She never gave up and did her very best to keep going. In my opinion, I feel like we need more women to be like your mom, to not be afraid to dream big or not to let her dreams go down the drain because of a guy. I believe if more woman would stand up just like your mom does we woman would be running more companies or more female leaders and presidents!

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