If VCs want to help close the gender funding gap, they just have to invest in more women-led startups, right? Maybe. But can they do it alone?
The funding gap for women-led startups is as pervasive as it is egregious. And when we talk about starting to close it, the collective eyes of the industry turn towards the VC firms.
Specifically, they fall on the largest and most high-profile among them; the firms dishing out the dollars… or declining to.
On the one hand, this is fair. We know investor bias, conscious and otherwise, contributes significantly to the ongoing funding drought for women founders.
On the other hand, this is only one part of the equation. Other levers need to be pulled to make meaningful, lasting change. To fully understand the challenges at hand, we have to understand the environment within which the VC ecosystem operates; the challenges investors themselves are grappling with.
This isn’t about giving VCs a pass, or allowing them to wash their hands of any responsibility at all. It’s about understanding what they can change, what they really can’t, and what’s tying their hands.
“There’s a huge bucket of systemic problems, which are multifaceted and complicated,” says Kylie Frazer, Managing Partner at Flying Fox Ventures.
“Then there are smaller, experimental nudges that individual investment firms can do to try and shift some of those systemic issues.”
Kate Glazebrook is head of impact at Blackbird Ventures, leading the firm’s impact efforts within the portfolio, within the team and externally. That included moving towards a more balanced firm and portfolio.
Blackbird's goal (pledged publicly in 2023) is for 40% of the pitches it sees at investment committee level to have at least one woman founder.
As of July 2024, that’s sitting at about 33%.
Just over 30% of deals made included a woman founder, and 35% of all dollars invested went to women-lead startups. In most cases, Kate says, portfolio companies with mixed-gender founding teams are distinctly women-led, with a woman as CEO.
For Kate, the first step towards moving the needle was in organising the data at her fingertips, so it can be continually analysed on an ongoing basis.
“We have a better handle on the data,” she says.
“We’re much better placed to be able to interrogate it on a month-by-month basis and we’re holding ourselves to account internally and externally on that, which we know drives good hygiene.
Now, the team is experimenting, seeing what kinds of measures make a difference, and what’s holding back change. And they’re sharing those insights, both within her team and with peers in the ecosystem.
Kate has also been gathering qualitative data, conducting interviews with founders both within the Blackbird portfolio and outside of it.
“Feedback is probably the most valuable currency at Blackbird,” she says.
“So part of the process is looking at ourselves and making sure we start there.”
Blackbird is far from the only large Aussie VC doing this. Kate is seeing introspection happening throughout the investment ecosystem that wasn’t there previously.
“We’ve got to understand the role we play in this,” she says.
“For a long time, we’ve seen the industry blame the pipeline, and there’s some merit in that. Because it is true that there are fewer women and non-binary folk in the kinds of educational and occupational pathways that typically translate into becoming a founder.
“But, from the ecosystem, you hear a lot of blaming of the VC funds, and there’s merit to that too.
“The truth lies somewhere in between. There are lots of causes. It’s very hard to disentangle. And no one person or fund holds all of the levers.”
To quote one of Blackbird’s values, Kate stresses that true systemic change will take decades, not days.
“Some things will take a long time to gestate, and they might be non-linear,” she says.
“It will look like nothing’s happening, then all of sudden we will see a lot of change at once.”
Research shows that women-led VC firms naturally back more women founders. And the emphasis here is on ‘led’.
Just having women in the building, or around the table isn’t enough. They need to be in senior, decision-making roles.
As Mass Dynamics founder Paula Burton recently highlighted at an Innovation Bay event — and as Kylie Frazer shared in an op-ed here, simply partnering women founders with women investors can actually make things worse.
Kylie explains that women investors tend to be more junior, so sometimes lack the experience (or the clout) to be able to fully advocate for their picks.
“That’s an unintended outcome that came from a good place,” she says.
Samar McHeileh is one of the co-founders of Equity Clear, and a Managing Partner at Scale Investors, an angel network dedicated to backing women-led startups.
Bringing more women into the ecosystem is a good start, Samar says. But to create an actual balance of power, firms need to look at their culture. As noted in the IRG report, these ultra-male-dominated spaces can be unwelcoming, even hostile, to junior women and other marginalised people entering the industry.
“Are they psychologically safe?” Samar asks.
If the answer is no, then we’re unlikely to see women staying in these roles for long enough to reach senior positions. There’s also a risk newcomers will simply become conditioned to think in the same way as everyone above them.
“There are a whole bunch of environmental factors that need to change to keep those people engaged, to keep them safe, to empower them and to keep them in work, irrespective of gender, race and background,” Samar says.
And to make any real change to the stats, this needs to happen fast, and at scale. Samar wants to see a shakeup in traditional ways of thinking and traditional routes to leadership, to get more women into positions of power more quickly, and to create gender-balanced teams.
“We can’t wait for the juniors to rise up in the ranks. Why wouldn’t you just start doing it, instead of talking about it?”
Of course, VCs themselves operate within a system. And they have their own investors to answer to.
As Kylie Frazer puts it: “Everyone has a boss. And every time you look up, that boss is usually a man."
“Most capital allocators are staffed by men. It’s the shareholders appointing the CEO, so then you’re back to a different set of stakeholders. But wherever you look, there are not enough women around the table,” she explains.
This is why this can’t be written off as a ‘pipeline’ issue, she adds.
“This problem exists at every layer of the system. Venture capital actually operates very close to the bottom of this power stack, and the stack is stacked with men.”
This is a whole ecosystem that doesn’t currently prioritise diversity, or necessarily see the value in it. It’s an ecosystem built around high-net-worth men, and it has operated in the same way for generations.
As an example, Kylie explains the concept of the ‘GP commit’, or the amount a fund manager invests in their own fund — often about 2%.
It’s a way of showing limited partners (LPs) you have ‘skin in the game’.
“But they’re basically saying they want their fund managers to be rich,” Kylie says.
“If you’re really serious about having more female capital allocators, it seems crazy that you’re only going to let rich ones in.”
Both Kylie and Flying Fox co-founding partner Rachael Neumann do, in fact, have significant GP commits, Kylie says.
But, when raising their fund, they were asked about this constantly. Every time, Kylie pushed back, questioning exactly why this was deemed important.
“Maybe we’re making them aware of the unintended consequences of a simple question.”
Kylie and Rachael are proof that women in positions of relative power and privilege can not only change outcomes for women founders, but start conversations further up in the stack, too.
They’re opening the dialogue, and presenting new ways of thinking in a male-dominated space. And they’re not the only ones.
Chenelle Tanglao is the Director of Female-Led Ventures at Trawalla, the family office of Carol Schwartz, an iconic Aussie entrepreneur and longstanding supporter of women in business.
“Our mission, put simply, is to get more capital into the hands of female founders,” Chenelle says.
Partly, that’s through direct investment into women-led startups. But, the majority of the portfolio is investments in women-led funds.
“We don’t believe we’ll get to a diverse set of founders if we don’t have a diverse set of capital allocators. We think it is a fundamental part of the solution.”
Schwartz herself is a co-founder of Scale Investors (since sold to the four current managing partners). She’s also an investor in Flying Fox Ventures, ALIAVIA and Artesian’s Female Leaders Fund.
She’s putting her values into practice at an LP level.
“We absolutely need more people like Carol Schwartz in the world,” Chenelle says.
“It creates a chain of accountability. It really does start from the very beginning; with LP’s holding their fund managers accountable.
“We’re lucky as a family office to be able to invest our own capital directly into women founders.”
Elsewhere, one of the prevailing challenges facing women founders is that when they do secure funding, they receive much less than their male counterparts, on average.
In 2023, the average funding round for all-women teams was $700,000, compared to $3 million for all-male teams and $1 million for mixed teams.
Women-led startups also account for a much higher proportion of deals closed at seed stage than series A or beyond.
At the later stages, as Kylie explains, investors will look at how far a company has come since its seed round, without necessarily considering the size of that seed round.
“We’re asking women founders to get to the same summit as male founders with a quarter of the fuel,” Kylie says.
Flying Fox has launched a sidecar fund to address this imbalance — to boost seed funding for women-led startups.
“We thought one of the ways we could experiment is keeping our same strategy, not changing our mandate in any way at all, and just inviting our investors to make an additional commitment to women-led startups.
“We were amazed by how much interest we had. Our LPs really wanted this.”
The demand here is encouraging, and eye-opening. And Kylie hopes other, larger, firms are paying attention.
Presumably, if they put similar products in place, they would see a similar response, “with much bigger numbers”.
As we move forward in these conversations and strive to address the gender funding gap, it’s imperative to look at everything through an intersectional lens.
Improving outcomes for women is only really meaningful if we’re improving outcomes for all women, including women of colour and Indigenous women, migrant women, disabled women, trans women and gender-diverse people, LGBTQI+ women, and women from all socio-economic backgrounds.
For Chenelle, this is constantly front of mind.
“There is no way we get to real equity, in terms of gender race, class and everything else, unless we address every part of it, she says.
“Many of us aren’t starting at the same place. How do we make adjustments for that?”
Currently, most measures and programs are targeted broadly towards women, Chenelle notes. But, while the stats are trickier to compile and less readily available, we know women of colour receive an even smaller percentage of startup funding. For other marginalised groups, we simply don’t have the data, but it’s not a stretch to imagine that it wouldn’t be pretty.
“In an ideal world, we would have people working on all of these different challenges,” Chenelle says.
“I’m glad to see the momentum we have in the gender space. We have to make sure that whatever benefits we accomplish also flow on to other marginalised groups.”
At risk of stating the obvious, the women we’re speaking to here are not investing in women as a charitable exercise. Studies show women-led businesses, on average, generate better returns, grow more quickly and create more jobs than male-led companies.
Yet these facts have yet to cut through the entrenched biases holding women entrepreneurs back.
There is something to be said for reframing the discussion. Of course, these investors are driven by social change. But they’re also running businesses — they can only create that change if they generate returns.
“This is not anecdotal. It’s all about data,” Chenelle says.
“I don't know if we’re telling those stories enough. There’s so much value in that data piece.”
This is an overlooked and underserved segment, she says. It’s a goldmine just waiting to be tapped.
“We think we have the commercial advantage. If others aren’t looking at you, we’ll look at you. And we’ll get our well-deserved returns.”
This is also front-of-mind for Kate and Blackbird. It keeps the team focused.
“The currency for an investment team is finding the best people to invest in. If we’re not doing absolutely everything we can to see the greatest potential set of founders, we’re failing at our job,” she explains.
“If nothing looks different in ten years’ time, how are we going to feel about what the ecosystem has lost? The lost potential associated with that is very real.”
According to Samar, even if VCs don’t see the moral value in investing in women, they are starting to understand the financial value — or, more accurately, the potential returns they’re missing out on.
Leaders of VC firms do see the opportunity, and they want in, she suggests. What they’re struggling with is the ‘how’.
She’s seen a shift away from the idea that women need to be ‘fixed’ or ‘educated’, and more introspective thinking.
Transparency is a start, “because what’s not measured doesn’t change”, she says.
What’s next is deliberate decision-making, acknowledging and challenging unconscious bias, and creating incentives to deploy capital more equitably.
This is a relatively small ecosystem. Change is very possible, and it could have an outsized impact.
“We’ve got 65 groups signed up to Equity Clear. If we get to 100, that's practically the whole ANZ ecosystem,” Samar says.
“The scale is tipped one way at the moment. It needs to be tilted the other way. There is really no excuse.
“I genuinely think Australia and New Zealand have an opportunity to be leaders in this space, instead of lagging.”
Stephanie Palmer-Derrien is a writer, journalist, editor and storyteller specialising in startups, tech and small business.
She is passionate about telling untold stories and amplifying marginalised voices in the Australian business landscape. Previously, Stephanie was startups and technology editor at SmartCompany, and deputy editor at Black Knight Media in London.
She has also dabbled in travel and lifestyle journalism. When she’s not writing, Stephanie can often be found in bookshops, wine bars and cosy cafes, or playing in the park with her one-year-old and her goofy dog.
Stephanie Palmer-Derrien
Writer
Kylie Frazer
Kate Glazebrook
Samar McHeileh
Chenelle Tanglao
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