After a record-shattering 2021 in venture capital fundraising for Arizona companies founded by women, this year pales in comparison.
A new report from Pitchbook found that Arizona companies with at least one woman founder or co-founder raised $44 million in venture capital across 21 deals during the first three quarters of this year. That’s just a fraction of the $528 million raised in 37 deals in 2021.
But last year was an anomaly during a red-hot investment wave, and the 2022 deal count is more in line with other recent years — though the money raised is significantly lower. For instance, in 2018, there were also 21 deals, but $126 million was raised. In 2019, there were 27 deals for women-led companies with $135 million raised.
Another quirk about 2021 was that year’s decisive fourth quarter. During that period, 13 deals funded women-founded Arizona companies with $450 million — that’s more than a third of the deals and more than four-fifths of the money for that year.
That shows that the Grand Canyon State’s 2022 funding scenario can still improve during the current quarter, though this year’s number so far is the lowest it’s been since 2017, when 17 women-founded companies raised a combined $54 million.
"The venture capital industry was forced to navigate rougher terrain in 2022, with economic pressures mounting," the report said. "While this is evident in broader deal activity data, it appears that female founders have not been disproportionately affected, as they have closed greater deal value [year to date] than during any year prior to 2021. [A]ctivity among these companies has proved relatively durable."
Arizona decline follows national trend
Pitchbook’s report examined VC funding for women-led startups nationwide, breaking down figures for each state. The report found that deal activity generally fell across the board, and Arizona’s drop-off in deal count was part of a trend seen in many parts of the U.S., notably in major tech hubs such as Silicon Valley, New York City, Boston, Atlanta, Los Angeles and Washington, D.C., according to the report.
Despite the general downturn in VC investing, which was attributed to the difficult market, the report found that women-founded companies are holding their own in the broader startup ecosystem. Female-founded companies this year accounted for 25.5% of total VC deals, which is only slightly lower than last year’s 26.4%.
Women-led startups are also still expected to raise more capital in 2022 than they have in any year before 2021, the report said. The proportion of venture capital that has gone to women-led startups so far in 2022 is 17.2%, which has remained unchanged from 2021.
The plateau is a positive signal that the tougher conditions for startups this year are not disproportionately affecting women founders, Pitchbook said. Women-led startups were disproportionately affected in the last VC downturn, when their proportion of deal value dropped to 14.5% during the pandemic in 2020.
Female representation in VC firms
The report’s authors pointed out that the large majority of the investors writing VC checks are male, with only 4.5% of firms having majority female decision-makers, and 16.1% of venture capitalists overall being women. This is a key factor working against women-founded companies, they said.
“Female founders are consistently showing up as high-performing startups, but they remain at a disadvantage when forced to pitch to predominately male checkwriters,” said Annemarie Donegan, analyst at Pitchbook, in a statement. “Check writers are a driving force for diversity in the VC ecosystem and the lack of female representation in firms has a ripple effect on the founders they invest in as well as the LPs that trust them to generate returns. Promoting and recruiting female check writers can open doors for more female founders and diversify portfolios. There is still much progress to be made within VC firms along with the startups that receive their funding.”
The report also broke down the deals since 2008 for companies that are led only by women and those that are led by men and women together. In Arizona, there have been 230 VC deals during that time involving women-led companies, and 64 of those were companies founded solely by women, bringing in $254 million.
The number of women-led companies in Arizona getting VC money each year has been on the increase during that time, too. Between 2008-2013, there were two years with 11 such deals, one with eight and the rest less than five. Between 2014-2017, there were 15 or more each year, and since 2018 there have been more than 20 each year.
More than half of the deals since 2008 in Arizona have been for angel or seed-stage money. Those accounted for 128 deals and $163 million. But far more money has been spent on early- and late-stage deals — with $457 million in early-stage funding in 61 deals and $639 million in 41 late-stage deals.
Of the 230 VC deals with female-founded companies done over the past 25 years, 180 of them were with companies in the Phoenix metro, accounting for $1.1 billion in funding. Among the rest, 44 were with Tucson companies (for $154 million), three in Prescott ($1.3 million), one in Flagstaff ($4.5 million) and two were outside of any metro ($2 million).
The Denver Business Journal contributed to this report.
