In 2019, 2.8% of funding went to women-led startups; in 2020, that fell to 2.3%.
Historically, it has always been a challenge for women to successfully fundraise, especially at the pre-seed and seed level. Hwever, when the shutdowns began in 2020 due to the COVID-19 Pandemic, venture capital firms and angel groups began stating that they were “doubling down on portfolio companies,” but often, what that translated to was “we're going to only invest in what we know,” which meant investing primarily in white male founders.
This was the subtle undertone that we didn't see discussed in the media, but was the lived experience of women across the globe. When women went to fundraise they were met with, “this is a really uncertain time. We can't afford to be taking any risks.” It’s sad to think that many investors consider women founders to be a risk, but change or different seems risky in the VC world. Perhaps this attitude is why progress has been especially hard in this area.
Marisa Warren, Co-founder and General Partner at ALIAVIA and Founder at ELEVACAO, heard these stories firsthand from her community of founders. Warren believes a key reason for the decline in funding was (and is) that women kept getting “nos” and felt this meant they needed to de-risk their AI business to a greater extent than their male counterparts.
“We actually saw an increase in quality women tech founders starting up in 2019 and 2020. Due to overwhelming rejections from VCs, these women pivoted to focus on generating revenue instead of pitching VCs. The impact has been slower growth because they’re not getting that injection of outside capital needed to scale rapidly.
“For VCs, the firms' investing with this bias will see their pipelines suffer. Because these investors are signaling to the market that they very rarely invest in women founders at an early stage.” says Warren.
Kate Vale and Marisa Warren, Co-founders and General Partners at ALIAVIA
This is exactly what happened to Lisa Vincent and Jenny Barltrop, Co-Founders of HowToo, an AI-enabled platform that allows businesses to build digital learning content in minutes instead of months.
Vincent and Barltrop recall, “From seeing other female founders struggle, we knew the pre-seed/seed stage fundraising would be tough so focused on getting our MVP customer-funded, launched and built traction before going to market to fundraise.”
For women founders in the AI space, a lack of early capital due to discrimination can be especially challenging.
Audra Gold, the founder of Vurbl, a creator-first, streaming audio platform for all audio types, found that “you get the sense that because you are a woman, and look nothing like social and digital media giants that came before you, it's going to be difficult for VCs to wrap their heads around what you are saying you can build. Basically, most investors just couldn't believe I could build something at the scale I said we could.”
Similarly, Sansan Fibri, Co-founder and CEO of Wakefully was met with “skeptical, often dismissive attitudes.”
Fibri continues, “Investors often praise ‘big vision’ and bold innovation. With digital mental wellness being still only on the verge of exploding, many couldn’t see the market opportunity and my prescience was often shot down as a foolish little girl’s dream.
“I was told I’d be taken more seriously if I brought on a technical co-founder. More or less covertly, it was expressed a male co-founder would make a greater impact on my fundraising goals.”
Research shows that investors have more favorable reactions to male entrepreneurs during pitch meetings and ask different and sometimes more challenging questions of female founders during due diligence.
Marisa Warren & Women Founders
“Unconscious gender bias throughout the investment process needs to be addressed,” says Kate Vale, also a Co-founder and General Partner at ALIAVIA Ventures.
“There also needs to be more women focussed VC funds,” says Vale. “In Australia for example there are NO female focussed venture capital funds. But when you fund female tech founders, they deliver on-average 35% higher ROI than male only founded businesses.
“That’s why Marisa and I are making the bet on both Australia and the US markets with ALIAVIA Ventures. We see these markets are significantly underserved for female tech founders. The more of us that there are, the more we will solve the problem for underinvestment in women entrepreneurs.”
With this given context, I spoke in-depth with Warren about what can be done to address the pressing issue of a lack of funding for women-founded AI companies.
Warren: In 2019, there were a lot of conversations about diversity investing, specifically in LA they signed a pledge to increase minority investments. But, it's interesting that when the pandemic hit, those diversity talks, kind of went out the window. And were deprioritized, and instead thinking “let's invest in people that look like us that have similar backgrounds to us.”
Forbes: Do you think there's anything in this problem of bias unique to women-founded AI companies?
Warren: I think there's always that layer of, can women really do that? And then you add on the AI piece, a sophisticated technology.
With the example of Wakefully, at first it was just herself. Then she sought out a male CTO, because she was told she had to. There's definitely a perception that women can't build AI and they need a male CTO to be able to do that. Women are constantly getting that feedback in the fundraising market.
Marisa Warren & Women Founders
Forbes: How can we address that issue of these venture firms essentially telling women to not seek venture funding, and instead just build your company?
Warren: That's one problem. But as a result these women are now saying, “I'm not going to even approach a VC, in that early stage,” so firms' pipelines are going to really suffer. Because these investors are signaling to the market that they very rarely invest in women founders.
When founders do come across funds that back women and minority founders, they are typically very small funds. So a major part of the solution is funding the funders as well.
