Why Women Get Less Than 3% Of VC Funding – And What We Can Do About It

In 2023, female-only founded startups received less than three percent of venture capital (VC) funding, a number that has remained stagnant despite numerous efforts to promote diversity, equity, and inclusion (DEI). This troubling statistic reflects a deeper problem in the venture capital ecosystem: women, especially women of color, continue to face disproportionate barriers when seeking investment.

The Reality of VC Funding for Women

Despite the growing number of women entrepreneurs, VC funding has not followed suit. Women founders often face bias and stereotypes, making it harder to gain credibility and funding. Investors, who are still predominantly male, may unconsciously (or consciously) prefer to invest in businesses that align with their own experiences or interests, leading to a male-dominated startup culture. As a result, businesses owned by women, and especially women of color, are seen as riskier investments, despite evidence to the contrary.

Moreover, studies show that women-led companies tend to outperform their male counterparts in terms of return on investment, yet women still face an uphill battle in securing the funding they need to grow and scale their businesses.

Why DEI Training Isn't Enough

Venture capital firms have implemented DEI initiatives aimed at increasing diversity, but these efforts have largely been unsuccessful. As Arlene Dickinson, Managing General Partner at District Ventures Capital, pointed out that DEI training often fails because it focuses on awareness rather than action. Companies may attend diversity seminars, update their mission statements, or celebrate Women’s History Month, but these efforts rarely translate into actual change.

The problem is that there are no tangible consequences for failing to invest in women. When businesses aren't held accountable, there's no real incentive to shift their investment behaviors. As Dickinson argues, what’s needed is systemic change - one that goes beyond training and holds investors accountable for their actions.

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What Can We Do About It?

1. Hold VC Firms Accountable

As Dickinson emphasizes, accountability is key. VC firms need to set specific, measurable goals for investing in women-led businesses. This could mean requiring firms to report on the gender breakdown of their portfolios or creating penalties for those that fail to meet certain benchmarks. Publicly available data on where VC dollars are going can also incentivize firms to improve their gender diversity, as transparency often drives change.

2. Increase the Number of Women Investors

Representation matters. The more women in decision-making roles at venture capital firms, the more likely they are to invest in women-led startups. According to research, female investors are twice as likely to invest in female founders, yet only 18 percent of decision-makers in venture capital are women. Encouraging more women to enter the field of venture capital, whether through mentorship programs, networking opportunities, or incentives for female-led VC firms, can help address this imbalance.

3. Reframe the Narrative

Women don’t need to prove that they’re worthy of investment. What needs to change is the culture that views them as less so. Investors must stop seeing women-led businesses as riskier or less profitable. It’s not about creating opportunities for women as a charitable endeavor but recognizing that investing in women is smart business. Women founders have consistently shown resilience, innovation, and the ability to deliver returns.

The fact that women still receive less than three percent of VC funding reflects an outdated and biased system that needs reform. DEI training is a start, but it’s not enough. We need to hold investors accountable for the lack of funding going to women and enforce measurable goals to ensure progress. It’s time to change the narrative and shift the power dynamics in venture capital so that women receive the funding they deserve.

Despite the lack of VC funding available for women, Dickinson wants women to know ambition is not a dirty word and leaves these words of advice:

• It's OK to think BIG: Women should feel empowered to envision bold, ambitious goals without hesitation or self-limiting thoughts.
• Act on BIG goals and execute on that belief: Ambitious ideas should be followed by actionable steps, translating that vision into reality.
• Lean into your uniqueness and lean out when it comes to representing yourself: Embrace your individuality and leverage what makes you different. Stay true to your identity and confidently project your value externally, without compromising your authentic self.

These words are powerful reminders to embrace one's ambition and uniqueness while focusing on execution and self-worth, even in a landscape where venture capital funding for women is limited.

The bottom line is that it's not just about awareness; it's about action. Investors need to step up and put their money where their mouth is, because investing in women isn’t just the right thing to do, it’s the profitable thing to do.