Missing Perspectives' readers, today we’re going to dive into a challenge facing female founders and investors.
We toyed with writing this as a straight report, but as a female-founded company ourselves that cares about women’s empowerment, we kind of have skin in the game. Adopting a posture of journalistic neutrality on this particular topic didn’t sit right with us.
In this deep dive, we’ll go through:
What the latest data from Equity Clear and Cut Through Venture says about the status quo when it comes to venture capital, gender and bias,
What factors have led to this situation,
What Australian investors including Giant Leap partner Rachel Yang and Scale Investors managing partner Samar Mcheileh say about what strategies work when it comes to making sure more female founders receive investment,
Annnnd what strategies don’t work (hint: hand-wringing).
So we're all speaking the same language, a founder is someone who starts a business, and venture capital is a form of investment that can help that business grow.
Typically, this is a capital injection from the investor side in exchange for equity on the founder side, and more than money can come with other supportive resources such as mentorship and connections. If it sounds boring, it isn't. This is all about people creating and building cool products and services.
Now, not all founders want venture capital, but since the 1980s it’s become a fairly tried and tested path to help tech businesses in particular grow at a much faster pace than you could otherwise (Canva, Mr Yum, and Airwallex are all venture-backed companies).
Let’s go.
I. The status quo
Each year, Equity Clear calls on 65 different investment firms including Blackbird, Airtree, Giant Leap, Scale Investors and Alberts to publicly release their gender pipeline data.
In Australia, investment firms do this on a voluntary basis. In California, home to Silicon Valley and a historically fairly entrepreneur-friendly culture, this is now mandatory.
The purpose of this is to help create a clearer picture about how much venture capital is out there, and where exactly it’s going. Over time, we’ve been able to build a picture that shows us that only 2-4 per cent of total global venture capital funding goes towards women-led businesses. The data is more limited when it comes to assessing intersectional factors beyond gender - but what we do know from research by Priyanka Ashraf and the Creative Cooperative is that less than 1 per cent of total VC funding goes to women who occupy another marginalised identity category.
This kind of depresso state of affairs has led to Australian venture capital firms publicly pledging to set targets and implement strategies for change.
However, in June 2024, data published by Cut Through Venture showed that in the first six months of the year, all-male founding teams received 88 per cent of the $2.3 billion invested into Australian start-ups.
In July 2024, data published by one of the largest venture capital firms in Australia Blackbird showed that only 33 per cent of the start-ups that pitched to its investment committee in the 2024 financial year had a woman on the founding team, compared to 37 per cent the year before. It had set its own target of 40 per cent.
Put another way, over the past 12 months Blackbird invested in 16 new companies and only 5 of these had a woman in the founding team (31 per cent). By dollar amount the firm fared better on gender, investing 35 per cent of total capital into founding teams with women.
In terms of who at Blackbird is making decisions about the flow of capital from its funds, 44 per cent of Blackbird’s investment team and 38 per cent of those who make direct investment decisions are women.
II. How did we get into this situation?
TLDR: Unconscious bias, gender roles, financial power, and preventative questioning
Lots of smart people have spent time thinking about this, and there’s no one single answer.
But we know four factors at play.
The first is good old-fashioned unconscious bias.
The Deloitte Access Economics team wrote in a 2024 report published in collaboration with Australians Investing in Women and Minderoo Foundation with the sexy, future-focused title “Remaking the Norm” that not only do Australians hold very different views about the roles of men and women but generally those norms exaggerate what are actually very small or perceived biologically differences. In fact, the academic literature finds that there are bigger differences between men (in group variation) than between men and women.
For a deeper look at bias, this conversation between business leader Carol Sanford and startup founder Zac Swartout has some intriguing ideas on how to work with our biases including genderism, including why working directly on the issue (e.g. unconscious bias training, DEI programs) may be counterproductive.
The second is how gender roles shape who starts and run the kinds of businesses that would be a good candidate for venture capital. Back to that Deloitte Access Economics report - in one chart, the authors’ paint a vivid picture of how internalising strict gender roles can shape the choices women make from school to retirement, from internalising “good girl” behaviour and staying quiet at work on the one hand, to feeling confident speaking their minds and taking risks (including starting their own businesses) on the other.
The third factor is financial power, which means who has the money to invest and the power to direct the flow of capital (some investors investing their own money, most invest on behalf of others). Typically, this has been men.
Finally, venture capitalists have been known to ask male and female entrepreneurs very different questions during pitch meetings, which in turn shapes how the conversation plays out. This is called preventative questioning, and you can read more about it in the Harvard Business Review here.
III. What strategies work for ensuring more women-led companies receive venture funding?
TLDR: Building diverse investment teams, removing the bias from hiring processes, investment firms signalling that they’re open to hiring women via external comms, letting men ask questions and be wrong, calibration-framing questioning during pitches, developing long term relationships and capacity in women as entrepreneurs, making the internal venture capital environment less bro-y, women investors attending external events
Rachel Yang joined impact VC firm Giant Leap back in 2017 as an associate, and is now one of three partners and co-owners of the firm alongside Will Richardson and Adam Milgrom. Given that 60 per cent of Giant Leap’s portfolio are women-led businesses, they are somewhat of an industry outlier.
“My view is that with any decision, an investment decision, a broader operational decision, there is always bias, conscious or unconscious, at play. If there is a way to minimise that, I think that is really positive to result in a more inclusive and fair process,” she says.
“That scene setting for me means that if you have a diverse team, those unconscious or conscious biases will not necessarily be in the same areas, so you can challenge each other in ways that will make for more fair decisions. If everyone is from the same background, the same gender, then there’s less likelihood of challenging each other on some of these biases.”
Giant Leap partner Rachel Yang says the careful implementation of strategies like tracking data, removing bias from application processes, and being a friendly face at events have helped the firm achieve a portfolio of 60 per cent women-led businesses.
In practice, this can look like Will and Adam asking her questions even if they fear sounding "inappropriate" because they are genuinely curious and want to learn more.
Good team dynamics aside, Rachel says she tends to be the one in the partnership team who has the closer relationship with the female founders across the Giant Leap portfolio.
Giant Leap has also noticed spikes in inbound deal flow of women-led companies (that’s VC-speak for women reaching out to a venture capital firm to have a conversation about their business) in the time period after Rachel has gone out to speak at or attend external events.
Giant Leap also uses a platform called Applied in its hiring process (a company that the firm has also invested in).
“We don’t look at CVs, we don’t look at names when reviewing candidates, we simply look at their responses. We just hired an analyst. For example, we asked, what’s the market size of one of our portfolio companies. And so they’d step out their workings, and provide that answer, and we’d review all those answers at once with no prior knowledge of who that candidate was. That kind of mechanism helps to remove the unconscious bias from the process like hiring to then try and create a more balanced investment team,” she explains.
Rachel attributes the fact that 60 per cent of Giant Leap's portfolio are women-led businesses to the careful implementation of changes and policies over time.
Rachel Yang's personal journey from associate to key decision maker in the Australian venture capital landscape is still relatively rare, however.
Angel investor and two-time founder (NiceTo and Press Play Ventures) Preethi Mohan observes that while more women are entering Australian VC firms at the associate level, they’re hitting a ceiling in terms of progression.
“There are more women coming into VC, but they are at entry roles. There’s no fast pass or horizontal moves being created in VC for women, and it’s a huge missed opportunity. Different sorts of expertise add so much value. Horizontal movement [women moving into investing from other industries but staying at the same level of seniority] is necessary. And there needs to be sponsorship, not just mentorship,” Mohan says.
NiceTo's Preethi Mohan.
Scale Investors’ managing partner Samar Mcheileh - a female-run firm that exclusively invests in women-led companies - adds that investors need to be mindful of language.
“I’m still guilty of using references to ‘war’ and ‘sport’ and highly patriarchal and misogynist metaphors. Like, ‘dry powder’ for instance. What a ridiculous notion to talk about the fact that there is plenty of money around… We try to unpack that jargon, and create a glossary of terms to try and remove the opaqueness, particularly in private markets. If you think about finance being really unattainable, and you go into venture, it’s even more so,” Mcheileh says.
“Language is one of the biggest barriers and the biggest thing that you need to unlearn is using language that is not patriarchal, not warlike, and not referencing the powder used in an 18th Century gun to talk about money.”
Scale Investors managing partner Samar Mcheileh says many finance metaphors are unnecessarily patriarchal.
A strategy that’s working for the Alberts team, a family office that focuses on backing "impact driven pioneers", is asking what Investment Manager Lisa Fedorenko describes as a “calibration” question.
“We chose a particularly good open ended question (if everything goes right for three years, where will your business be?) and a particularly sad preventative question (your business doesn't exist in 3 years, why did this happen?). This way every founder gets calibrated with the same type of questions,” she says - noting that founders also really enjoy answering the questions too.
Noting the issue of preventative questioning, Alberts investment manager Lisa Fedorenko asks all founders to walk through what best case scenario in three years would look like for their business.
IV. What strategies don’t work?
TLDR: Simply talking about the challenge without implementing thoughtful strategies to address it, not collecting the data (what isn’t counted doesn’t count), being more worried about being “canceled” or saying the wrong thing about diversity than showing humility
“I think it’s more the absence of strategies that has been the challenge. I think there’s been a lot of talk around wanting to improve, and then not necessarily changing processes,” Yang says.
“Just saying things like we’re not seeing businesses with women in the founding team. And for me it’s like… but they exist… so there’s got to be a question where you reflect on yourself and say ‘why are we not seeing them?’ We can’t keep doing the same things we’ve always done and expect the world to change.”
Multiple investors also referenced the need to make your firm externally and internally more appealing for women - an idea we’ll call "the hospitality thesis". A little bit of preparation in terms of company imagery, external communication, and then thinking about what it actually feels like for women on the inside can go a long way to making them feel like this world is actually for them. Splurge a little - buy that Diptyque candle. If you light it, they will come.
V. Female founder observations
Xylo Systems founder and CEO Camille Goldstone-Henry has just been through a seed capital raise, so the experience of seeing the challenge up close are fresh. She says although it’s hard to disentangle exactly why an investor may say ‘yes’ or ‘no’ to investing in your business, but notes that the numbers show us that the gender bias is real.
“There are so many factors that come into play when you’re pitching for investment that sometimes it’s hard to distinguish whether gender is coming into that. It’s not like I’m pitching alongside a male co-founder with the exact same business idea, and they say his idea is better. But what we know from the wider research is that definitely happens,” Goldstone-Henry says.
“I have seen this come into play in more group settings where we have been pitching for investments and there were male co-founders alongside me, and the feedback I got was that I need to be more upfront with my qualifications - the reason why I’m the one to solve this problem. In that particular scenario, I was the only person in this group of five startups that was qualified to be building a solution for the problem that I was solving, the only one with qualifications, and the only one who’d actually experienced the problem I was solving for.”
In terms of how this experience has changed her approach, Goldstone-Henry says it’s all about coming to meetings prepared.
“The biodiversity market is a very new market, so that in itself already works against us, but when you also have that gender lens on top of that in that men are sometimes taken more at face value than women, is that I need to have the numbers to have that backing,” she says.
“The problem I think with investment, and I haven’t been on that side, is it essentially comes down to whether or not you believe in the founder to execute or not. That’s where gender bias and unconscious bias comes into play because we have a lot of men in charge of the money, so they want to invest in people that look like them - other young white men. I truly believe if we want to see this gender gap closed, we need more women investing. 70 per cent of our cap table are women or deals led by women. So we are case in point that when women are investing, female founders get invested in.”