The Gender Gap in VC Funding Is Even Worse for These Women

(Bloomberg) -- When Daniela Perdomo went out this year to raise another round of funding for GoTenna, her mobile communications startup, an investor told her that he assumed the chief executive officer of a tech company would look more like Reid Hoffman. Then, he offered to introduce her to some female venture capitalists. “He said, ‘I think they would really understand you,’” she says.

Other investors—all men—questioned Perdomo’s expertise running a “deep-tech” company, she says. Some wondered if her product, which already has over 200 institutional customers, actually worked. Eventually, Perdomo raised $24 million.

It’s well-documented that female founders face an uphill battle when courting investors. But a study by market researcher Crunchbase finds that women have an especially difficult time pitching businesses considered gender neutral. Of the money women do attract, a disproportionate amount goes to businesses that cater to women, like fashion, beauty and cosmetics companies.

Women who run highly technical companies say the sexism they face from potential investors ranges from subconscious to overt. They say they’re not taken seriously as experts in their field and that they have to go above and beyond to prove there’s a market for their product or company–even if they already make money or have paying customers.

Falon Fatemi, the CEO and founder of Node, an artificial intelligence startup, had an investor ask if her AI knew that he was uncircumcised. “And that’s normal,” she says.

Leah LaSalla, who runs Astral AR LLC, an Austin, Texas-based drone startup, says investors have called the 38-year-old engineer “young lady” in rejection emails. “Any time these old white dudes start sentences with ‘young lady,’ I know they’re not going to take me seriously,” she says. “I’m Latina. I’m supposed to be the cleaning lady, not the CEO.”

Male venture capitalists often express surprise when Sheri Atwood tells them she leads the technical team at her company, SupportPay. “Wait, you code,” one VC said, then asked her to prove it. Atwood says she did, wondering aloud how often he makes male founders put on the same display. “Being a woman is the number one reason why no one believes that I code,” Atwood said.

Women also say they spend a disproportionate amount of time asking investors for money. That puts them even further behind their male competitors, who can spend more time building their businesses and meeting targets. Fatemi estimates she has to pitch four or five times more often than men in her position. Venture capitalists “turn me down for bullshit reasons,” she says. “You run a two-month process, and then they turn you down for a reason that could have been resolved in the first conversation.”

Frida Polli, who runs an AI-powered recruiting software startup called Pymetrics, says one VC did extensive vetting on her company. After, he sent her an email describing how “amazing” he found her company but didn’t end up investing. “He said, ‘There was something, we can’t put our finger on it, but it doesn’t make us believe in your investment thesis,’” Polli said. “I was like, really? All these other things are insanely positive, but you can’t invest?”

There’s no way to tell if or how much sexism factors into any given decision -- and entrepreneurs of any gender have to deal with rejection. But the data suggest that, in the aggregate, women in technical fields are disproportionately losing out on venture dollars.

Looking at more than 13,000 startups over five years, Crunchbase found that those started by women in gender-neutral categories -- like advertising and wearables -- get 54% less funding than female-founded businesses that cater to women.

To be sure, there aren’t many female-focused businesses founded by men, and some technical female entrepreneurs successfully raised a significant chunk of cash, including VMware Inc. co-founder Diane Greene and Insitro’s Daphne Koller. But they tend to be the exceptions.

Perdomo started GoTenna with her brother, Jorge. Crunchbase doesn’t count GoTenna as a female-founded company, though Jorge no longer works there. Perdomo raised the latest round of funding alone. The data, Perdomo says, “is a benchmark. It gives a directional sense.”

Among 257 mobile communications companies started in the past five years, only three were founded by women. Another 17 were started by a mixed-gender team. According to Crunchbase, that tiny cohort of female-founded companies -- 1.2% -- got an even smaller share of the funding: 0.3%. “Does society believe women can only run women-focused businesses?” says Perdomo.

The most notable women-led companies fall into what Crunchbase would characterize as “gendered” businesses. This year, makeup and retail empires Glossier Inc. and Rent the Runway Inc. reached unicorn status after big funding rounds valuing each business in excess of $1 billion. Stitch Fix Inc., the clothing stylist company founded by Katrina Lake that went public in 2017, is often cited as the female entrepreneur’s success story.

Those types of businesses get 110% of the funding that goes to female founded companies, Crunchbase found. It’s an easier sell to investors, Polli says. “They’re kind of like, yeah, you’re a woman, you understand shopping.”

The rise in funds dedicated to women- and minority-run businesses, like Plum Alley and Backstage Capital, have helped send more money to women -- but only to a point. They tend to have less in their coffers than the big shops.

“If my name was Jack and I had the same credentials, I probably would have been able to get double the amount of funding at double the valuation,” Fatemi said. “And I have male investors and friends who agree with me on that.”

--With assistance from Sarah McBride.

To contact the reporter on this story: Rebecca Greenfield in New York at rgreenfield@bloomberg.net

To contact the editors responsible for this story: Janet Paskin at jpaskin@bloomberg.net, Mark Milian

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