Women founders raised $4.3 Bn in 2022; more needs to be done to correct the historical gender gap, say VCs

Women founders have traditionally got the hard end of the stick. Not only have their credentials been questioned on the cap table, but investors have doled out smaller cheques and lower valuations to female entrepreneurs. As a result, global venture capital funding in women-led start-ups (as a share of total funding) stands at an abysmal 2 per cent (down from 2.3 per cent pre-pandemic). In India, the situation may be slightly better, riding on the improvements in the last couple of years.

A report by Tracxn estimates that women-funded start-ups now account for 18 per cent of all funded companies in India. The number of active investors funding women-led start-ups has seen a steady increase since 2010, with an impressive 42 per cent year-on-year jump in 2021. Almost $4.9 billion worth of capital flowed into women-led start-ups that year. However, funding activity declined 12 per cent to $4.3 billion in 2022 due to the overall slowdown in the venture capital market.

Despite the slight decline, “in India, women-led start-ups are gaining traction. In the past few years, the share of funding into women-led start-ups, as a percentage of overall total funding, has risen to 16 per cent in 2022 from 11 per cent in 2021,” Tracxn stated.

Several leading VC funds have now made it their priority to back women entrepreneurs and companies with at least one female co-founder to correct the historic gender imbalance in the world of start-ups. This includes Sequoia Capital, which runs the Spark fellowship programme for women entrepreneurs, Kalaari Capital which invests in women-led start-ups through its CXXO initiative, and women-focused funds like She Capital, AWE Funds, and more.

Sakshi Chopra, MD of Sequoia India and Lead - Spark is of the view that supporting women founders should become an agenda for the entire industry.  “It’s probably going to take a couple of years before we see women founders raising very large rounds of capital. [But] more women founders are coming to the top of the funnel, and the conversion from seed to Series A should also go up,” Chopra told Business Today exclusively.

Speaking of Sequoia’s Spark fellowship, which is aimed at providing women founders with equal fundraising opportunities, mentorship, and community, Chopra shared, “We spoke to 200+ women founders, and they said it was hard for them to raise their first round of seed capital, to hire in product and tech, and it was even harder to meet angel investors or find a co-founder. It was something we definitely wanted to address.”

India now has over 2,200 funded start-ups run by women, per Tracxn. Out of these 36 per cent have progressed to the Series A round, and 24 per cent have gone on to Series D or beyond. Fashion tech has 1,000+ start-ups run by women founders.

But only funding isn’t enough. Women should be on the other side of the table and in charge of signing the cheques too, believes Avaana Capital’s Founding Partner Anjali Bansal. Hence, it is imperative that venture shops hire more women across levels.

“The number of women in VC is certainly on the rise, with more females participating across various levels, designations, and functions. Not only women in leadership positions, but the number of women launching their own funds has also increased. But the numbers are still not comparable to men, even though higher than they have been historically,” Bansal told Business Today over email.

To create a steady capital flow for women-led start-ups, more young women need to be brought into the ambit of PE and VC investing, according to India Angel Network’s Padmaja Ruparel. “We’ve not yet built a cadre of women who are looking at venture investing as a long-term career path. What we are seeing is existing women in the finance space who have graduated to become VCs. It is still a first-generation industry for women,” she told BT.

READ MORE about the ‘Gender Gap in Start-ups and VC’ and ways to address the imbalance in the latest edition of Business Today magazine. On stands now!

Also Read: Women's Day: How to bridge the gender gap in start-ups and VC