The year 2023 proved to be a challenging yet transformative period for female founders and investors.
According to PitchBook’s newest "All In" report, while overall venture dealmaking saw its second consecutive annual decline ($34.4 billion in 2023 compared to 2022’s $44.2 billion), female entrepreneurs secured a record-high 27.8% of the total VC deal value, a significant increase from the previous year's 18.7 %.
However, the landscape was not devoid of challenges. Exit activity for female-founded companies in the U.S. saw a considerable decline, dropping by more than one-third since 2022 to its lowest level since 2016. Despite accounting for a larger share of the companies that successfully exited in 2023, female-founded companies faced significant hurdles in achieving exit strategies amid the overall decline in exit activity.
The representation of female decision-makers within venture firms experienced modest growth, reaching 17.4% for firms managing assets under management of at least $50 million, compared to 16.1% in 2022. Among smaller firms with assets under management of less than $50 million, the share of female decision-makers is 18.8%.
Angel investment, a crucial element in fostering initial opportunities for founders, faced a setback as many female angel investors took a step back in 2023. This resulted in a significant drop in VC deal activity for female-founded companies, with female angel investor participation totaling $1.2 billion, down from $3.7 billion in 2022.
Similarly, the deal count in female-founded companies with female angel participation as a proportion of all deals with angel participation dropped from 34.4% in 2022 to 29.8% in 2023.
Despite these challenges, female-founded unicorns demonstrated growth, particularly in sectors such as artificial intelligence and machine learning. The cumulative number of female-founded unicorns increased by 4.7% in 2023, with more than 100 companies contributing to this growth.
Resilience among market turbulence
Annemarie Donegan, research analyst at PitchBook, noted that despite the VC ecosystem’s major pullback since it peaked in 2021, female founders have shown tremendous resilience amid market turbulence.
“But there continues to be a wide gap between investment in female-founding teams and male-founding teams,” said Donegan. “We know that angel investors play an integral role in offering initial opportunities for founders, especially during market turbulence. With many female investors taking a step back last year, we will continue to see the impacts on female-founded companies over the next few years. It has never been more important for female representation in the VC ecosystem, and the industry has a long way to go to see true equity.”
Heather Gates, an audit and assurance private growth leader with Deloitte & Touche LLP, agreed, noting in the All In report that the latest edition of Deloitte’s VC Human Capital Survey shows that women are still woefully underrepresented among investment partners, at only 19%.
In addition, women also are far less likely to represent their VC firm on the boards of portfolio companies (20%), serve as a member of the firm’s investment committee (20%) or serve as an owner of the management company (17%).
Gates said additional challenges for women looking to land more VC funding sometimes is the nature of their approach.
“Instead of pitching their companies as the next Google or Meta, they may position them as incremental advances or ‘niche plays,’“ Gates writes in the All In report. “Such modesty doesn’t light up the scoreboard for venture funders seeking a healthy return on their capital.”
Breaking old habits
In addition, women continue to face discrimination, Gates said, citing an examination of 2,000 venture-backed startups published in 2023 in Harvard Business Review that found women-owned companies that raised their first-round funding exclusively from female VCs were only half as likely to raise a second round as companies whose funding included a male partner.
“The researchers concluded that potential second-round investors viewed female founders as less competent — no matter what their other qualifications — when they were backed solely by women, as compared to female founders who had funding from men or a mix of men and women investors,” the study authors said.
The solution? Achieving equality will require VC firms to break old habits, Gates said.
Partners will need to reach beyond familiar networks to recruit entry-level analysts,
“Changing the VC ecosystem will take time. Funds work on 10-year cycles; turnover is low; entry into senior positions is limited," Gates said. "Only persistent, sustained effort will ensure that today’s 20-year-old student will find the female support she’ll want when she’s ready to launch her transformative new company.”
Key takeaways
- The tougher capital-raising environment in 2023 affected the earliest and latest stages of the venture process in different ways. Angel investment activity declined, while unicorn activity grew.
- In 2023, venture dealmaking declined across the board for the second consecutive year. Female founders were impacted yet managed to secure a record share of total deal value.
- The general partner landscape is male dominated, which means most female founders pitch to and engage with male investors.
Source: 2023 All In: Female Founders in the VC Ecosystem
