How COVID-19 and the resulting recession are impacting female founders

Oct 16, 2020

Last week The Exchange dug into recent data concerning the amount of venture capital raised by female founders. As a refresher, the numbers were not good.

In Q3 2020, PitchBook data reported that US-based female founders raised $434 million across 136 rounds. That dollar amount was off from $841 million in Q2 2020, for context. The numbers were a dramatic turnaround from where 2019 left the industry.

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The sharp decline in available capital is slowing the pace at which women are founding new companies in the COVID-19 era. There are other factors are at play, new data from the Female Founders Alliance (FFA) indicates, but the funding drought is not helping.

Overall, the pace at which women are indicating that they intend to found a company, according to a group of women that the FFA is tracking longitudinally, is slipping.

FFA, a community of women founders and a startup accelerator working to achieve greater gender diversity in technology, built a sample of 150 women from tech hubs “with high likelihood of having entrepreneurial aspirations,” according to its dataset. It asked them about their entrepreneurial goals both before COVID-19 arrived, and again this September.

The changes in responses from before of the pandemic and today are striking. Let’s examine the data in light of what we learned last week concerning capital available for female founders and see what we can find out.

Depressing declines

In the group of 150 women, before the pandemic and its resulting economic and societal disruptions, 54.7% reported that they were “very likely to one day start a company,” with nearly 32.7% answering that they were somewhat likely to do so. Around 12.7% of the group said that they would “most likely never start a company.”

So, around 87% of the women in the group were looking to found a company at some point.

The Female Founders Alliance interviewed the same cohort in September, deep into the pandemic cycle, and the results changed:

  • 34.4% of respondents said that they were “equally likely to start a company, [albeit] later than I planned”
  • 32.8% were “equally likely to start a company, [and] on the same timeline.”
  • 16.8% reported that they were “less likely to ever start a company when this is over”
  • And 16.0% reported that they had already started a company in the last 6 months that they hadn’t planned

The data is instantly parseable, so let me help a bit. Around 51% of the group will now either delay the founding of their company, or skip the exercise altogether. This implies a narrower pool of female founders generally, and inside of the technology industry as well.

That around a third of respondents were not changing their timeline is heartening. And that around one in six had already founded a company was exciting.

Happily, concerning the 16% of the women who wound up founding a company early, only 5% did so due to job loss. And the majority, some 64% did so because they “found a great idea/opportunity and jumped on it.” (Here’s a recent example! Here’s another! One more! How about a fourth?)

But inside the 51% of women sampled who were less likely to found a company, or were expecting to delay their plans, the reasons given were dispiriting:

  • 47.8% for “financial reasons”
  • 20.3% due to a need for “corporate benefits”
  • 20.3% due to “additional caretaking responsibilities”
  • 5.8% due to “stress, fear and lack of motivation”
  • 4.3% thanks to “all of the above”

Our current economic recovery will allay some of those issues, but not all. An improved economy will likely limit financial concerns, and caretaking responsibilities could decline once schools and daycares fully reopen (or men step up more and shoulder their half of the work). But given the slow pace of recovery what the numbers tell us about today, it’s safe to say that some women who would have founded companies will wind up not doing so.

This drain of potential innovation is to our society’s detriment.

To close, let’s go back to the top. Recall that we began with another look at recent declines in capital available to female founders? Well, among the FFA data that says nearly half of women reported planning on delaying or cancelling their entrepreneurial plans for financial reasons, there’s a nuance worth considering.

Here’s how the Female Founders Alliance described that answer, adding a bit more detail (bolding via TechCrunch): “The most common reason [for responding women to delay or cancel their entrepreneurial plans] was financial security, including the need for a steady paycheck, and the lack of funding for women entrepreneurs.”

Unsurprisingly, lack of access to capital means that less women founded companies. Sure, some of the declines were probably caused by women dropping out of the founder game before they raised, but the same thread pulls both ways: Some women didn’t found a company because they could not access capital.

So, here’s today’s founder and VC market, going backwards in time and becoming less diverse than before. 2020 really has been a year of letdowns.

,Last week The Exchange dug into recent data concerning the amount of venture capital raised by female founders. As a refresher, the numbers were not good. In Q3 2020, PitchBook data reported that US-based female founders raised $434 million across 136 rounds. That dollar amount was off from $841 million in Q2 2020, for context.

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