October 3, 2019
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Data Show that Gender-Inclusive Founding Teams Have Greater Success in Fundraising and Innovation

By Collin West and Gopinath Sundaramurthy The glass ceiling is being chipped away more and more each year, but the task of shattering it is far from over.In the ever-evolving realm of startups and venture capital in the United States, we find that teams with at least one female founder tend to raise more capital from investors. This fact is also bolstered by data that shows female founders tending to have a higher tangible positive impact on revenue generated by startups versus their male counterparts.The impact of women-founded startups goes beyond companies’ finances. Studies have repeatedly shown that founders are statistically more likely to hire people culturally similar to themselves; therefore, without more women in charge of the hiring process, it can be difficult for other women to become part of growing industries.As the startup landscape shifts toward opportunities outside of tech hubs such as San Francisco and New York City, it will be critical to employ a more diverse perspective to find profitable solutions to the many problems otherwise not addressed by more traditional teams.The Kauffman Fellows Research Center (KFRC) analyzed US venture-backed startup data from over 90,000 companies going as far back as the year 2001. The analysis also included examining over 400,000 employees working in these startups, including founders, C-level executives, and board members; only 60,000 were women.The gender gap in founding teams is shrinking — but there is still a long road ahead. 

Figure 1. Founder’s firm type breakdown by year of the firm’s first venture roundThe gender disparity of founders in startup firms has been incrementally decreasing in the last two decades as shown in Figure 1, but it’s far from an even split. The percentage of women-founded companies has grown from a low of 4% in 2001 to 21.6% in 2018.“This is progress,” says Tammi Jantzen,Co-founder and CFO of Astarte Medical, a healthcare startup devoted to improving outcomes for preterm infants. “But given that this is over a 17-year period and we are very far from parity, we have a long way to go.”Gender diversity looks different by industry and region.

Figure 2. Firms Classification by Industry and US Region.

Figure 3. Percentage of female-founded and all-male founded firms by industry and regionThe majority of the venture capital-funded startups are in the computer science and healthcare spaces, and are primarily based in the Pacific and Northeast regions of the US (Figure 2). Interestingly, there is a higher percentage of women founders in some regions than others, with 18% of companies in the Northeast having at least one woman founder, but just 12% Southwest (Figure 3). This trend also holds when examining startups by industry, with consumer services and healthcare having more women-founded startups than the rest.Although Jantzen is based in the Northeast, fundraising took them coast to coast to meet with prospective investors, with a significant Series A investment ultimately coming from the middle of the country. “Our fundraising journey did not look at all like what we predicted at kick off. We thought we knew who our investors would be and how much time it would take to close the round. Sitting here today, I can tell you we were wrong on both counts.”Through Astarte Medical, Jantzen is focused on improving health outcomes in the first 1,000 days of life, initially developing the NICUtrition platform for preterm infants. Jantzen said her years of experience in venture—both as an investor and a startup entrepreneur—have given her a unique perspective. Her advice to female founders is to never give up. “We need to adapt, but it is also so important to stay true to yourself and stay true to what you want to accomplish.”Female-founded companies raise more than all-male teams. Startups of the future should mobilize around this distinct advantage when selecting their founding partners.

Figure 4. Total Investment raised and no of rounds by US firms.In the last 20 years, the startup ecosystem in the US has grown dramatically, both in-terms of dollars raised as well as the number of unique venture capital-backed rounds raised before an exit. In the year 2018 alone, total startup funding in the US reached $150B (Figure 4) raised by 8,200 startup rounds.

Figure 5 (left). Investment rounds by firm’s founder type. Figure 6 (right). Investment rounds by firm’s chief type.During the same 20 year period, there were three times as many early-stage rounds raised by all-male founding teams than by startups that included women founders (Figure 5).When examining firms by the gender of C-level executives (“Chiefs”), the pattern of data is quite different. During the early stages of the startups (Series A and B), there remains a wide gap between the number of rounds raised by all-male executive groups and those with at least one woman (Figure 5). However, this gap eventually disappears, with nearly equal numbers of rounds raised by each group at the Series C and D stage.

Figure 7 (left). Investment dollar raised by the firm's founder type.Figure 8 (right). Investment dollar raised by the chief’s founder type The data doesn't paint a completely negative picture for female founders. Startups with at least one woman founder have in fact raised more money at similar investment stages than their male-only counterparts (Figure 7). This pattern also holds true for startups that have at least one female C-level executive (Figure 8).From the first round of funding to the last, companies with at least one woman founder were able to raise millions more than companies without any women founders, with the difference growing larger as companies continued to grow and raise further rounds of capital.Diversity sparks innovation. Several studies have pointed to diversity’s net positive impact on a startup’s success, in particular, that of women in senior leadership roles; these themes were echoed in reports by McKinsey and Bank of America.A report by the Boston Consulting Group notes the tangible impact that female founders have. “For every dollar of funding, [startups founded and co-founded by women] generated 78 cents, while male-founded startups generated less than half that—just 31 cents” [emphasis added].There are two general themes that can explain these results:1. A more gender diverse team may pursue projects that a homogeneous, male-dominated startup might not consider. The homogeneous team would miss potential opportunities due to its inability to conceive an alternative perspective.2. Since women have been underrepresented in startup leadership positions for so long, the diverse approaches they bring to a team can create asymmetrically positive returns in comparison to more traditionally male-dominated teams. “Diversity is vital to startup growth, as it provides a greater pool to generate ideas from, and allows for a greater understanding of potential consumer models,” explains Lisa Feria, CEO of the Midwest venture capital firm Stray Dog Capital. “While the stereotypical startup is led by young men on the East or West Coast, that is not and should not always be the case.”Diversity is not simply locked to a single geographic area;more diverse teams are able to approach problems from various angles, and break free from the stereotypical East Coast or West Coast startup mold. Feria, for example, focuses on companies that other venture capitalists may overlook, such as those that strive to take animals out of the supply chain. “Startups are not all located on the West Coast or the East Coast,” comments Feria. “We have amazing, incredible, innovative companies across the world. Our success could not have happened without a diverse group of people to meet and network with.”Final thoughts.While the data show that gender representation for women in startups needs significant work, it is tremendously encouraging to see startups with at least one female top executive raise more capital than their all-male peers.As we move forward, Tammi Jantzen lays it out perfectly: “There has been a lot of movement to address and fix gender diversity in the past few years. There are many women in positions of power moving the field forward to get more female investors and female involvement in startups. Female empowerment is great, but it can’t just be women. Men have to be a part of the solution too.”Collin West is the Founder of the Kauffman Fellows Research Center and the Co-Founder of the Kauffman Fellows VC Fund. Gopinath Sundaramurthy is the Head of Research of the Kauffman Fellows Research Center. Collin and Gopinath leverage data science to help inform the startup community. This is Paper 1 of a series of 4 papers about diversity & inclusion in startups.  

This research was funded by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of Grantee.

MethodologyAll the data used in the development of all charts and insights was obtained from Crunchbase private-market data. Specifications of the analysis includes:

  • Venture rounds for US based firms between 01 January 2000 to 31 December 2018
  • Venture rounds excluded from our analysis including debt, lbo, exits (ipo, M&A), crowdfunding, etc.
  • Venture rounds that did not contribute to dilution were resolved with previous rounds and then excluded from the firm’s round count
  • We found that our analysis was similar to what we have seen published with other datasets. For example, venture capital financing rounds (Figure 4) in this study are comparable to US NVCA-Venture reports published by Pitchbook.
  • Only male and female genders were included in the analysis
  • Executives with 'founder' (case insensitive) in the titles were tagged as founders
  • If the firm only had all-male founder(s), then it was marked as an all-male founded firm
  • If the firm had at least one female founder, it was marked as a female-founded firm
  • Executives with titles including 'ceo', 'cto', 'cfo', 'cio', 'chief', 'coo', 'cro', 'president', 'co-owner’ and 'cdo' (case insensitive) were marked as chiefs
  • If the firm only had all-male chief(s), then it was marked as an all-male chiefs firm
  • If the firm had at least one female chief, it was marked as a female-chiefs firm
  • Crunchbase’s disclaimer for gender data: “Crunchbase’s dataset is constantly expanding, but there are gaps. A company may not have founders listed on its Crunchbase profile. Or Crunchbase might not have a gender listed for founders that are attached to the person’s Crunchbase profile. (Note: In addition to “male” and “female,” Crunchbase has over two dozen other gender tags.)