DocSend’s 2023 Funding Divide report didn’t give us the news we wanted to hear.
By “us”, I mean women and minority founders and general partners. What we saw in 2022 was a regression of equitability: Broadly speaking, women-led teams raised 36% less than all-male teams. And when those teams were also made up of minorities, they averaged a third fewer investor meetings than their peers, all while raising the least amount of funding. Diverse teams, in general, raised about a third less on average in 2022 than all-white teams.
In 2021, we thought we were making progress. After an embarrassing year in 2020, when all-female teams raised 70% less than their male counterparts, that figure moved to 25% less in 2021—likely in part because of renewed VC attention on funding underrepresented founders. Yet in 2022, they were the only team to average under $1 million per raise.
What I’m seeing now as a principal at Collab Capital, an investment firm for Black entrepreneurs, is that in this economic climate, everyone is trying to de-risk their investments—but it’s trickling down from general partner to founder in some interesting ways. When everyone is looking to make safe bets, the criteria for investment is often steered by bias.
A niche thesis de-risks operational costs
Emerging managers who are fundraising are seeing more scrutiny from institutional lenders or investors.
But there are two things they can do to de-risk operational costs:
- They can operate funds with more than one GP. Lenders and investors like seeing that there are people with multiple points of view who can focus on different areas of the fund versus one person managing it all.
- They can be more specific about their core thesis. There are riches in niches. Investors want to see that you either have expertise in one core area or that you’ve brought on an advisory of board members who have expertise.
The same expectation is being placed on founders. Where Black founders see challenges specific to them most recently is with the volatility of interest in their business and the number of meetings they need to take for even the smallest amount of funding.
Why Black founders are experiencing whiplash
When DocSend ran their Funding Divide survey for 2021, all-female diverse teams saw a giant year-over-year gain in their average number of meetings with investors. But despite averaging more meetings than their peers, they also raised the least.
This isn’t much of a surprise. In 2020 and going into 2021, corporations and governments made a lot of promises with SSBCI funding and other initiatives to help minority businesses. Corporations promised to stock stores with more Black-owned products and to hire more people of color, from suppliers to C-level staff.
But after PPP loans went dispersed, companies over-hired. Now they’re firing people, and a lot of the folks in charge of supporting those initiatives are gone. Inevitably, this has deeply affected Black businesses.
I like to remind Black founders that they’re always playing a numbers game, especially if they’re in markets where VCs aren’t as present as they are in Silicon Valley or New York. In these cases I advise them to look for alternative sources of capital, such as grants.
But there’s no sugarcoating it: it’s disheartening to see the numbers that reflect how many meetings it takes for minority and female founders to get the small amount of funding they do get. I’m hopeful that some education about how founders can connect with the right type of investor can help—that way, they can at least have the right meeting.
All-female teams fight disbelief in abilities
DocSend’s report also found that VCs are spending 125% more time on all-female team slides compared to all-male team slides—but they also spend slightly more than double the time on product sections for all-male teams.
I’ve seen this in my time at Collab, and I’d like to add some nuance. When founders field more questions about their team, it’s coming from a place of wanting to validate whether or not a team is really capable of succeeding with a high-tech product, especially if it’s quite complex.
I’ll be honest: it’s difficult to compare scrutiny between all-female teams and all-male teams without context about what’s being compared. Sometimes women-led teams have lined up such a great team that VCs are examining that slide with more scrutiny, but they’re thinking, “Wow, these people have some amazing people on their team. Their product is great, but they’re going to win because they have a better team.”
But what I can say, from what I’ve seen, is that women face more disbelief in their ability. VCs may ask, “Are you virkelig capable of this?” What often happens, however, is that this disbelief creates more diverse and more educated teams among women-led startups compared to their male founder peers.
Successfully navigating the fundraising landscape with pre existing biases of race and gender identity during an anticipated economic downturn, two shifts can be made – investors can separate safety from proximity and familiarity, and fund managers and founders can dissect how they attempt to curb bias or, through conditioning, reinforce them.
To continue to address this disparity, we have to explore pitfalls that contribute to allowing bias to seep in and examine how female-led and diverse companies differ in their approach to securing investment as influenced by societal norms and how they anticipate how they will be received.
Learn more about the funding discrepancies that still exist in 2023: Download the 2023 Funding Divide report.