Fundraising Is A Harder And Longer Process With Less Money For Underrepresented Founders — DocSend’s Funding Divide 2024 Report

For a while, depressed dealmaking was more concentrated in late-stage and venture-growth, affecting companies closer to an IPO that had pulled in supersized checks at inflated valuations in 2021 and 2022. Now, the venture downturn has hit the seed stage. After a significant tightening in the startup fundraising scene in 2022, obtaining early-stage capital became even more challenging in 2023. Investors hesitated to invest due to concerns about sustained high interest rates, causing VC funding to its slow down to its lowest pace since 2018. According to Pitchbook, “At the current pace, US pre-seed and seed-stage startups are on track to raise roughly what they did in 2018 across a little more than 3,000 VC deals — more than halving 2021’s deal count.” Underrepresented founders, who faced additional challenges amid ongoing discussions about diversity, equity, and inclusion in the tech industry, were hit the hardest despite their demonstrated potential for high performance.

Publicly, VCs have been acting like they are more supportive of female and diverse founders. However, looking at the data in the Funding Divide, they are not actually doing the things that they promised to do. They aren’t meeting many female and diverse founders, and they don’t try to understand the problems that their companies solve. Also, a higher bar for traction is expected from these founders.

Female founders are held to a much higher standard because we aren’t part of the VC social network and don’t match a pattern of founders that it previously funded. According to a Harvard Business Review case study, VCs posed different questions to male and female founders: They asked men questions about the potential for gains and women about the potential for losses. The study found evidence of this bias with both male and female VCs.

DocSend’s Funding Divide 2024: Funding Divide Grows For Underrepresented Founders

For the fifth year in a row, DocSend has published “The Funding Divide,” a report analyzing how race and gender can influence a startup's ability to secure early-stage funding. (Per the report, “minority” refers to survey respondents who self-identified as members of nonwhite racial groups. Additionally, for the data set, DocSend solicited data from teams with male, female, and nonbinary founders. Even with the expanded definition of minority (many funds such as Softbank’s Opportunty Fund and diversity groups only include Black, Latino, and Native Americans), the numbers are arresting.) Although DocSend’s data shows that “most teams, with or without minority members, held fewer investor meetings over longer periods to secure less funding in 2023 than comparable teams raised in 2022, cutbacks in funding hit underrepresented founders disproportionately hard in 2023.” The report shows a funding divide and bias:

• Some underrepresented teams worked even harder to raise less than their peers.
• The gap in dollars raised between all-female and all-male teams has widened for the second year in a row.
• All-female teams with minority members saw the biggest Y-Y drop in VC meetings and raised the least of all demographics.
• All-female teams with minority members saw their average fundraising times rise the most while they continued to raise the least among all demographics,
• All-female teams raised 43% less than all-male teams.
• Diverse teams raised 26% less on average than all-white teams.

Gender and Fundraising: All-Female Teams Fall Further

All-female teams (whether diverse or not) faced the most challenges in 2023. All-white female teams took 67% longer to raise their round and diverse female teams took 75% longer. These increases are over 50% longer than those experienced by other demographics. The fact that diverse female teams had the largest increase in fundraising times while raising the least amount of capital is another signal that these founders faced disproportionate levels of friction in 2023.

According to DocSend, “The gap between female and male teams grew wider for the second year in a row, as female teams raised 43% less than their male counterparts. From a Y-Y perspective, all-female teams saw the biggest drops in investor meetings and amounts raised (24% and 36%, respectively). Although all-female teams had slightly more meetings than the overall average, the fact that they also raised the least signals that they worked harder for less in 2023.”

Combining Race and Fundraising— Diverse Teams Fall Further Behind

Data reveals significant drops in Y-Y amounts raised over 50% in the case of all-male and mixed gender teams that were white. However, differences between demographics are apparent:

• In percentage terms, all-female teams with minority members were among the least affected by Y-Y drops in amount raised. They raised 31% less in 2023, but their average meetings dropped by 36% (the most of any demographic) and they raised tbe least amount of capital.
• Diverse all-male teams were the only demographic whose average investor meetings increased from 2022 to 2023.

DocSend Deck Scrutiny Reveals Trends By Gender

Comparing pitch decks by gender reveals trends and bias since certain slides matter more by gender or race. With regard to gender, “VCs spent 66% more time on all-female team sections compared to all-male team slides (and 30% more than the overall average for this section). Similarly, all-female business model sections received 41% more investor attention than all-male sections.”

Although product sections had similar average viewing times in 2023 for male and female teams, the Y-Y change is notable: the section received the most investor time for male teams in 2022 and 2023, but the average time spent dropped by 31%. Meanwhile, the product section was among the most scrutinized for female teams in 2023, however, the average time spent by VCs dropped by just over 30% year-over-year.

Interestingly, the fundraising goals section was one of the most scrutinized sections in 2023. All-male teams’ fundraising sections received 25% more attention than all-female sections in 2023; the extra time on this section for all-male teams can be correlated to male teams raising more capital on average. VCs spent 60% more time on all-male fundraising goals sections in 2023 compared to 2022 where they spent 14% less time on all-female sections.

Laura Rippy, an investor at Alumni Ventures, said, “The deck attention figures are arresting, especially in the context of female teams raising less on average. It’s hard not to conclude that biases are entering the fundraising process during these pitch deck reviews.”

DocSend Deck Scrutiny Reveals Trends By Race

When pitch deck scrutiny was analyzed by racial demographics, three sections stood out: team, product, and business models. First, investors spent 20% more time on diverse teams’ team sections than on all-white teams. Second, investors spent 45% less time on diverse teams’ product sections compared to non-diverse teams. Finally, diverse teams received 29% less time on their business model sections compared to all-white teams.”

Disproportionate Friction For Underrepresented Founders

Underrepresented founders faced disproportionate levels of friction in 2023. David Uponi, an investor at Forum Ventures, said, “As VCs have been holding back on their spending, they have been falling back into their old habits of tapping into the founder networks that they already know. They are less willing to look at new deal sources than they once were. This leads to missed opportunities both for investors and historically underrepresented founders. In fact, Black founders have recently told me that fundraising conditions are worse now than they were before the pandemic. This is frustrating because it isn’t any riskier to invest in historically underrepresented founders but it is nonetheless perceived as such.”

__________________________________________________________

While some mention that more networking events connecting female founders, funders, operators are a hopeful sign, it’s not meaningful unless the events result in meetings for the founders attending. Sadly, they don’t. VCs need to understnad that female founders want to be taken seriously. Dear VCs, we don’t want bagels, we want honesst meetings.

__________________________________________________________

According to Victoria Yampolsky of the Startup Station, “Unfortunately female founders are often seen as inherently riskier propositions, as a result of the subconscious biases still present in the VC community.”

While some mention that more networking events connecting female founders, funders, and operators are a hopeful sign, it’s not meaningful unless the events result in meetings for the founders attending. Sadly, they usually don’t. VCs need to understand that female founders want to be taken seriously. Dear VCs, we don’t want bagels, we want honest meetings.

Regulatory Support For Fair Access to Capital

Regulatory support is critical to encourage investors to open up their networks and consider deal flow from alternate sources. California’s Senate Bill 54, which was passed last year, requires venture capital firms and their limited partners to publicly disclose the names of their portfolio companies and the demographics of the founders. Similarly, Yampolsky helped introduce a similar bill in New York, AO9786, with Representative Alex Borres. A Massachusetts bill— S978/H1708—is in the works to enact fair lending laws to venture capital. According to Yampolsky, “Between NY and CA, we can access 50% of the venture capital worldwide. Even a small change in investment behavior as a result of this new legislation will mean billions of dollars going to underrepresented founders.”

Performative Activism: A Lack of Thoughtfulness and Sincerity

VC funds and diversity groups should be more intentional with their efforts. If you want to help female and diverse founders, curate an audience with female and diverse founders and investors. Create content that’s not remedial. For example, if you’re hosting an event and calling it Women in Generative AI, bring in some superstar founders or execs from top tech companies as speakers whom we can learn from. When we take time out of our day to attend an event, we don’t just want a free bagel or glass of wine and to mingle among women. We deserve more. We deserve an honest meeting, feedback, intros, and support. Sadly, performative activism — e.g., hiring diverse non-investment partners and under-tracking diversity KPIs — has resulted in no improvement in funding going to underrepresented founders, according to the VC Human Capital Survey. It’s time VCs show traction for their diversity efforts.

Conclusion

Many VCs overlooked Melanie Perkins when she was fundraising since she didn’t fit the pattern they were used to. She is an Asian female founder from Perth, Australia and a college dropout with a non-technical background. She founded Canva, which is currently valued at $26B.

Jeremy Au, an investor at Orvel Ventures, said it best, “Savvy investors see through simple pattern-matching heuristics to discern a track record of success in a founding team – beyond their pitch deck. It’s comparatively easy to invest in teams that check every recognizable status box with their pitch deck, but this strategy doesn’t necessarily lead to outsized returns compared to one's peers. Investors should dig deeper into teams that show promise but don’t come from backgrounds that immediately code for venture investment. This strategy does justice to diverse founders and is also key for investors to gain a competitive edge and work with founders who may be overlooked by other VCs.”