The boys’ club is as entrenched as ever. Companies with all-female founders attracted less than three per cent of Australia’s venture funding last year. That compares to over 60 per cent for companies with all-male founders. What gives?
On panels, in the media and inside accelerator programs, female founders are more visible and vocal than ever before, but the figures show venture capitalists have yet to discover what a “female Mark Zuckerberg” looks like. They are also slow to pull out their cheque books (in meaningful numbers) to back start-ups led by women.
Venture capitalists invested a little over $US1 billion in Australian and New Zealand start-ups in 2018. All-women teams received just $US30.15 million of the total, across five deals, according to data from M&A, private equity, and VC database PitchBook that was provided to Which-50.
That’s equal to about 2.9 per cent of 2018’s total. Meanwhile, all-male teams received about $US624.28 million — roughly 62 per cent. Teams with at least one female founder fared better, raising $US352.34 million, or roughly 35 per cent of last year’s pot.
Looking at the much larger US market, female founders raised $US2.88 billion in 2018, or 2.2 per cent of the $US130 billion total in venture capital money invested over the year, according to an analysis of PitchBook data by Fortune. All-male teams got 76 per cent — or $109.36 billion — of the total market.
The size of Australia’s venture market means just a handful of significant deals can sway the results. While the figures from the US have hovered around the two per cent mark in recent years, female-founded start-ups in Australia and New Zealand have inched ahead. In 2017, Australian and New Zealand all-female founding teams raised $US42.59 million across 16 deals, representing six per cent of the $US707.97 million raised that year. In 2016, all-female teams raised $US35.51 million, or 4.3 per cent of the $US766.72 million total.
That’s up from 1.8 per cent in 2015, when all-female founded start-ups raised $US15.02 million out of the total $US805.84 million invested that year. Prior to 2015, according to PitchBook’s data, the amount of venture capital funding raised by women-led start-ups was either non-existent or barely registered — a season shown on the graph below.
Chart: Which-50, Source: PitchBook
The figures illustrate that the systemic barriers — some historical hangovers, others subconscious behavioural flaws — still remain.
That’s the view of Sandy Plunkett, a tech sector commentator, analyst and former venture capitalist in Silicon Valley. She’s now host of the new Little Fish podcast about people and power in a digital world.
“Women have been poorly funded traditionally in tech because when venture capital really started to be used as a device to scale, women weren’t in it. They weren’t in the funding of it and they certainly weren’t in the companies of it,” Plunkett told Which-50.
Today’s statistics have roots in the 1970s, when venture capital first became a vehicle for businesses trying to progress from start-up insurgent to global disruptor.
“The early tech venture capitalists in the 70s were basically 100 per cent men — mostly technical — who had had previous success with the likes of Intel, Hewlett-Packard, etc. They in turn funded business enterprise hardware and software companies because business was the only buyer of tech back in those pre-PC and pre-commercial internet days,” Plunkett said.
“So, effectively what that meant is that you had blokes funding other blokes to sell gear for other blokes to use. A closed loop of the boys’ club.”
The rise of the consumer internet promised to change all that, or at least disrupt it. With businesses no longer the sole buyers of technology, the internet promised to introduce a diversity of ideas, genders, classes and races to the tech ecosystem. But, as the stats show, “that’s not in fact happening in 2019″.
“Two decades after the internet really started to become a mainstream, commercial engine, we still have this extraordinary bloc of men funding men,” Plunkett said.
“There have been lots of voices for change, but my concern is that a lot of it is noise and it hasn’t really trickled down into the results of more money going into funding.
“It means the problem is really systemic and cultural. It’s also one about scale.”
According to Plunkett, there’s a lot more at play than intentional male bias — men actively attempting to keep women out of the picture.
“It is literally blinders,” she says.
For one, venture capital is a pattern-matching business, Plunkett says. “If the new thing looks like a young guy out of Harvard wearing a hoodie then venture capitalists tend to pattern-match a lot of look-a-likes,” she said.
That tends to exclude women, “they haven’t been able to visualise and get their heads around the female Mark Zuckerberg.”
Chart: Which-50, Source: PitchBook
Another obstacle female founders face relates to the market they are addressing and the problems they are trying to solve. Often, male investors don’t see the size of the potential opportunity if it sits outside of their world view.
“If men don’t do a lot of the care — the babysitting, the child raising, the aged care for example — they tend not to see the size of the market,” Plunkett said.
If the 70s were about selling gear to blokes, the 21st century equivalent for start-ups out of Silicon Valley is that they want to solve the problems that men have identified and understand. This attitude appears to have migrated down under.
“One of the things women entrepreneurs have got to remember is, what is the global potential or regional potential of this business that I am pitching? If it’s in a market segment that is misunderstood by the primary audience they are trying to get money from, how do they show them how big that is? Because once they see that, they’ll come round!” says Plunkett.
Madeleine Grummet, co-founder and CEO of GirledWorld, start-up advisor and investor, also argues female founders have to work harder to convince VCs they’ve got a feasible business idea.
“If your investors are all male and you’re female you often do have a different world view,” Grummet told Which-50.
Grummet said in general, not always, businesses founded by women are “solving problems with a female lens on the world” which gives them a unique insight into the problem — but also can be harder to sell, depending on who is sitting across the table.
“Convincing investors that they have found a real problem to solve and that it does actually have a marketability, a viability and a feasibility — you’ve got to work harder to get them over the line. You have to get them to sit on your side of the world and look at it.”
Grummet says she has also observed a ‘let’s just see how you go’ attitude of investors hanging back and delaying backing women-founded businesses, as well as a shortage of women in the ecosystem.
“I think there’s also an invisible private network for deal flow. So are the women actually getting to the table where the decisions are made? Probably not. There is this invisible bro network and there is not enough females in the ecosystem,” she said.
But before women even get to the table there are social, structural and systemic barriers at play in the start-up ecosystem.
“What we know is that in Australia for example, it’s only one quarter of start-ups are founded by females, only five per cent of them are unlocking the capital they need to scale the market. It’s ridiculously low,” Grummet said.
Grummet also highlighted a recent Harvard study showing founders were on average in their forties — an age when women often juggling commitments of care to their family, partner or extended family — which limits the amount of time they can spend working on their business. Or it necessitates earning a stable income — something which often eludes founders taking a leap into start-up land.
What gets funded?
Major Australian venture capital firms are putting metrics in place to measure the gender or wider diversity within their portfolio.
According to a survey conducted by The Australian Financial Review in October 2018, of 323 active investments made by nine top Australian funds which responded, 85 of the companies — or 26 per cent — had female co-founders.
While the market is slowly moving, particularly when it comes to start-ups with at least one female founder, Sandy Plunkett believes founders need to work within the system by appealing to what matters most to VCs: scale and success.
“Venture capitalists are not interested in niche, ‘me too’ businesses,” she said.
“Venture capitalists are only interested in scale. That’s all they are interested in: scale it, get an exit or publicly list.”
The recipe for a successful venture-backed start-up includes a large potential accessible market, scalability, monetisation and a strong, pragmatic management team, which includes women and men and different skill sets, Plunkett says.
“That’s what gets funded. That’s what has a chance to succeed in a dog eat dog, brutal, brutal world,” Plunkett says.
“The noise, the voices and the calls to arms are all really, really important because I think they really do make people stop and think. I just wonder whether it changes behaviour at the end of the day. It takes a long time,” Plunkett said.
Top ANZ VC transactions in companies with at least one female founder
|Deal size (US$)||Year|
|Judo Capital||$103 m||2018|
|Crimson Education||$39.5 m||2016|
|Clinical Genomics||$26 m||2018|
|ProTA Therapeutic||$15 m||2016|
Voices for change
Amanda Price, Head of High Growth Ventures at KPMG, believes the awareness around the issue of gender and efforts to bring more women into the ecosystem are beginning to have an impact.
“It’s not changing fast enough, but it is changing,” she told Which-50.
“From an investor perspective I think the VCs are really, proactive in Australia in terms of wanting more female founders.”
High Growth Ventures launched two years ago as a vehicle to connect start-ups with the services offered by KPMG. The team works with Australian founders and keeps track of the Australian Venture Capital movements with quarterly Venture Pulse reports.
Price says she has observed more women entering the VC ecosystem — both at the decision-maker level as well as working within the firms in roles such as community managers. Along with the work happening within the industry — female-focused accelerators and incubators and funding programs — she’s optimistic the groundwork will result in bigger changes in the future.
“I think from all the work people are doing at school level, university levels and all the way through the industry, we will see a significant difference in the coming years,” Price said.
“It is just hard for changes to happen immediately. You have to build up the pipeline of female investors and founders for that to change significantly.”
Already a start-up investor, Madeleine Grummet is about to start the VC Catalyst program with Wade Institute within the University of Melbourne — a one-week immersive program for active investors to gain best-practice tools and skills to make better investment decisions.
Grummet said she made the move into investing because, “I’ve seen too many great female businesses not achieve the success that they should. I’ve seen women have to work way too hard to be noticed.”
“Frankly I think we need more representation from women; we need them to be sitting at the table to balance out what’s really been a man’s game.”
Grummet is a firm believer that diversity is necessary to solve biggest social, economic and political problems the world is facing.
“Frankly I think men are also missing a lot of opportunities that could unlock not just capital, but the solutions to some really big, wicked world problems,” she said.
“We know diversity gives us an edge. We need diversity to fuel the problem-solving for some of the biggest problems in the world right now — social, economic, political.”
Former advertising executive and start-up founder Cindy Gallop has offered her own solution to the funding bottleneck: women. “Make a shit-tonne of money so we can build our own financial ecosystem to fund/help/support other women.”
The growing awareness of diversity issues has generated a groundswell of smaller investments for pre-seed or angel stages focusing on funding women or minority-led start-ups.
For example, SheEO launched in Australia last year as a vehicle to both fund female-founded start-ups and encourage women to invest. Through the program, 500 female backers collectively raise a $500,000 fund which is then loaned interest-free to five female-led ventures.
Grummet expects SheEO will disrupt the investment cycle if it can reach critical mass.
“Angel investing is women saying ‘if we can’t play inside this system we are going to design something ourselves; we are going to put our collective effort together to design something outside of that,” Grummet says.
However, as Sandy Plunkett notes, “Friends and family, angel investing, seed investing; that’s enough to get your minimal viable product out there, it ain’t enough to make you famous.”
Those big piles of cash doled out by venture capitalists are even more necessary to scale in a world when companies (think: Uber) are delaying their IPOs, raising larger and larger private rounds to out-compete any rivals before they even think about making any money.
“That’s been a massive, massive shift and I think that trend, that reality, makes it even harder for women and minorities to break into the system,” Plunkett said.