Firms invested a total of $434 million in Q3—the lowest figure since the second quarter of 2017, according to PitchBook data. The third quarter total also amounts to a 48% drop in funding from Q2, when female founders received $841 million across 132 deals.
“When it comes to unraveling systemic racial and gender bias in the investment community, this data affirms that we are only at the beginning of a very long and difficult fight,” said Melissa Withers, who co-founded RevUp Capital in 2015.
While overall US venture capital investments in 2020 are on par with previous years, those funds haven’t necessarily reached female business owners, dealing them a disproportionate blow. Investments in women-led companies this year are on pace to be the worst since 2017.
US venture capital deal flow by female (co-) founded companies
Leslie Feinzaig, founder and CEO of the Female Founders Alliance, said that in the face of uncertainty, many VCs have stayed closer to their networks. This has closed them off to outsiders, affecting the women and minorities trying to break into their circle. Feinzaig’s Seattle-based organization focuses on improving the experiences of companies led by women and non-binary individuals.
“With women founders crushing it on every metric—except VC fundraising—it is clear that the industry’s refusal to support these women is based on an unwillingness to adopt new processes for sourcing, evaluating and selecting deals,” said Withers.
The funding challenges experienced by female founders this year follow a record 2019. In the first quarter of that year, VC funding hit a decade peak of $950 million across 207 deals. The year ended with a total of $3.35 billion invested over 709 deals. So far this year, venture capitalists have injected almost $1.9 billion into female-founded companies.
Feinzaig said there are multiple causes for the slowdown.
“Additional caretaking and remote schooling responsibilities caused by shelter-in-place orders are falling disproportionately on moms, making it harder for many moms to work the same hours as their partners,” she said.
Economic uncertainty has also forced women to hold onto jobs with steady income and health benefits. This causes a vicious cycle: If women feel they can’t raise capital successfully, they become more likely to scrap their entrepreneurial plans, Feinzaig said.
Women founders also had to contend with investors wanting to deploy excess dry powder into existing portfolio companies during the early months of the outbreak, said Allison Baum, a general partner at SemperVirens Venture Capital.
“Dollars are being disproportionately allocated to experienced founders and this disadvantages minorities and women who do not have the same pre-existing reputation and network,” said Baum.
Related read: Female founders face funding hurdles amid the pandemic
This story has been updated to provide more context about the overall VC fundraising environment in the US.
Featured image via CoWomen/Unsplash