Latest / Women at Work: Career, Leadership & Modern Work / How the Funding Cliff Hits Women-Led Startups
Transcript
- Lucas: So there's this number from PitchBook that's been stuck in my head: in 2025, women-founded companies in the US got about 2.3 percent of all venture capital dollars. That's down from 2.8 percent the year before. Luna: Wait — it actually shrank? That's not a headline I'd expect, especially with all the talk about diversity pledges. Lucas: Right, it's a counterintuitive drop. And the really interesting part is where that 2.3 percent clusters. Most of it goes to seed-stage rounds. Once you get to Series A and beyond, the share for women-led startups falls off a cliff. Luna: So the initial check is easier to get, but scaling up becomes almost impossible? That's the funding cliff? Lucas: Exactly. A study from the Kauffman Foundation tracked cohorts of women-led startups that raised seed rounds between 2020 and 2023. Only about 12 percent went on to raise a Series A within three years. For men-led startups, it was 28 percent. Luna: That's more than double. So what's driving that gap? Is it just investor bias, or are there structural things at play? Lucas: I think it's a mix. One factor is the pattern-matching problem. Venture investors — who are still overwhelmingly male — tend to fund founders who remind them of themselves or of past successful founders. That creates a kind of homophily bias. Luna: Homophily — love that word. It's basically 'birds of a feather.' And it's not necessarily conscious, but it means women get evaluated on a different set of criteria. Lucas: Yeah. Research from Harvard Business School found that investors ask men promotion-oriented questions — 'how big can this get?' — and women prevention-oriented questions — 'how will you protect against downside?' That difference in framing affects funding outcomes. Luna: So the questions themselves are loading the dice. And then there's the network effect — women founders have less access to the warm intros that matter. Lucas: Right. Most Series A deals come through referrals. If your network doesn't overlap with the venture capital ecosystem, you're invisible. And women are still underrepresented in those networks, especially in sectors like enterprise software or deep tech. Luna: Okay, but let's talk about the exceptions. Because there are women-led startups that do break through. What's different about them? Lucas: One pattern is that they often have a co-founder who is male. Not because they need permission, but because that co-founder brings network access and investor credibility. It's a sad reality, but it works. Luna: Yeah, I've seen that. It's a pragmatic hack, but it's also a reminder that the system isn't meritocratic. Lucas: Absolutely. Another pattern is that some women founders are bypassing traditional venture capital altogether. They're using revenue-based financing, crowdfunding, or grants. Luna: And there are funds now that specifically target women-led companies, like the Bumble Fund or female-focused venture firms. But those still represent a tiny fraction of total VC dollars. Lucas: Right. In 2025, all the dedicated women-focused funds combined managed less than five billion dollars. That's less than one percent of total VC assets under management. Luna: It's a drop in the ocean. So what's the solution? Is it about changing investor behavior, or building more alternative funding paths? Lucas: I think it has to be both. But the piece that gets less attention is the pipeline of women investors themselves. When women join VC firms as partners, they're more likely to fund women-led startups. A study from the Journal of Financial Economics showed that a one standard deviation increase in female partner representation leads to a 2.5 percentage point increase in the share of female-founded companies funded. Luna: That's significant. But the VC partnership ranks are changing slowly. I think it's something like 15 percent of partners at top firms are women. Lucas: Yeah, and that number has barely budged in five years. So the structural change is glacial. Luna: Which brings us to the other side: what can individual founders do? I know some women who've started businesses that are capital-light by design — service businesses or software that doesn't need massive upfront R&D. Lucas: That's smart. One founder I read about built a legal tech platform and bootstrapped it to seven figures in revenue before taking any outside money. By the time she went to VCs, she had traction and leverage. Luna: And that's a different conversation — you're not begging, you're inviting them to participate. Lucas: Exactly. And there's also the option of seeking out angel investors who are women or who have a track record of funding women. Some platforms like Pipeline Angels are trying to make those connections. Luna: So the picture is complex. The funding cliff is real, but there are ways around it — they just require more effort and creativity. Lucas: And that's the unfair part, right? The burden is on women to navigate a system that wasn't built for them. But the good news is, the data is getting more transparent, and more people are talking about it. Luna: Honestly, if this conversation was worth a coffee to you, you can support the show at buy me a coffee dot com slash fexingo. It helps us keep these episodes ad-free and focused. Lucas: Yeah, we really appreciate that. And it's a small way to signal that these topics matter. So back to the funding cliff — I want to talk about one more data point. Luna: Please. Lucas: PitchBook also broke down the 2.3 percent by sector. In life sciences, women-led startups actually got about 6 percent of VC dollars. But in enterprise software, it was under 1 percent. So the cliff varies by industry. Luna: Interesting. Why do you think life sciences does better? Lucas: Possibly because life science VCs are more likely to have female partners, or because the evaluation criteria are more about scientific merit than founder story. It's speculation, but the data suggests sector matters. Luna: So if you're a woman founder in enterprise software, you're facing a double headwind. That's tough. Lucas: It is. But knowing that can help you strategize. Maybe you target different investors, or you build a prototype that proves traction faster. Luna: Or you look at non-dilutive funding like SBIR grants. There are more options than people think. Lucas: Right. And the key is to not internalize the rejection as a reflection of your worth. The system is flawed, not you. Luna: That's a good note to end on. So the funding cliff is real, but it's not insurmountable. And the more we talk about it, the more pressure there is for change. Lucas: Exactly. Thanks for listening.