Is it a Pipeline Problem?

“It’s a pipeline problem!” I can’t tell you how many times I have heard this said when investors are talking about why they don’t invest in more women-led companies. They are convinced that women-led companies just don’t exist in high enough numbers and that is why they aren’t investing in them. I’m here to officially clear up that false narrative. 

First some statistics I am sure you have all heard before. It is true that women-led companies receive less than 3% of venture funding. But per the Kauffman Foundation, as of 2016, women-led startups accounted for nearly 40% of new startups. Unfortunately, that IS a decline of 4.2% from 1996, but it certainly shows there is not a significant pipeline problem that can account for the funding disparity. If venture funds aren’t seeing close to a 60/40 ratio in their pipeline, they should really step back and ask themselves why.  

Kaufmann Foundation analysis on the change in composition of new entrepreneurs

Some of the feedback I have heard from female entrepreneurs is that they no longer waste their time pitching to funds that are mostly men because they know their odds in receiving funding from them is close to zero. A lot of women-founded companies are addressing problems that are specific to women and a room full of men haven’t experienced these same hurdles. They get feedback such as, “We just can’t get comfortable with the market.” That’s venture code for, “I don’t see the problem.” Another female entrepreneur told me that when she submitted her pitch deck to a large venture conference she could see that no one even viewed it. These are not signs of a lack of a pipeline, but a lack of pipeline review.

As women are getting savvier in how the venture industry works, they are focussing on where they have the best chance of funding. They aren’t going to enter venture conferences when they look at previous years and see that the stage was full of men. They aren’t going to submit to venture funds that don’t have diversity in the partnership or even worse don’t have diversity in the makeup of their portfolio founders. Pursing funding there is just a waste of their valuable time.

Many fund leaders are also not seeing the lack of diversity in their portfolios as a problem, saying that their returns are doing quite well, so they are just going to keep doing what they are doing. That will likely work for a while yet, but as soon as fund LPs (investors in venture funds) realize they could be making more money in funds that invest in women, these venture funds are going to struggle to raise their next fund.  

I won’t sign off without offering some solutions, as I am not a believer in complaining and leaving it there. After all, solving a problem is the sole reason CEOX was started. Investors need to make efforts to go out into the world and be where the women are. Attend Women in STEM events. Look through meetup and find the many groups where businesswomen mix and go meet them. Make changes to your partnership and actively recruit women and minorities because of the vision they can bring. And finally, make it public that you realize your mistakes and are actively changing and doing better. Stop blaming the pipeline and start looking within. When more women start seeing that women-led companies are getting funding, more women will be starting companies and we will all benefit. We can all do better!