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Disparities in Venture Capital: The Impact on Women Founders and Women of Color in Tech

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Written by Natalia DaiesSeptember 1, 2023

Fearless Fund, a Black, women-led venture capital firm, is being sued for racial discrimination by the American Alliance for Equal Rights. The lawsuit claims the firm runs a discriminatory program through its Fearless Strivers Grant Contest, which awards grants to Black women-led businesses. Edward Blum, a leader in the Supreme Court case that dismantled affirmative action in college admissions just a few months ago, and anti-equality activists, is leading the lawsuit. This lawsuit highlights the inequities in access to funding and the challenges faced by women founders, especially women from underrepresented and historically excluded groups. 

According to Pitchbook, all-women teams received only 1.9% or $4.5 billion of $283.3 billion in available venture capital funding in 2022, and women of color received just 0.39%. Additionally, Black entrepreneurs saw a 45% decrease in funding at the end of 2022. This funding gap perpetuates gender and racial disparities in the tech industry. It hinders overall economic and technological progress by excluding a significant talent pool and limiting access to sponsorship in a male-dominated industry.

Venture capital plays a crucial role in the growth and success of startups by providing them with the necessary funding to develop products, scale operations, and competitively enter new and existing markets. While women start businesses at a higher rate than the national average, and women of color accounted for 64% of new women-led organizations in 2022, studies continue to show that implicit biases in investment decisions often lead investors to favor entrepreneurs who fit certain stereotypes, such as being white and male, leading to women and other underrepresented founders receiving a disproportionately smaller share of venture capital funding, highlighting the need for increased diversity and inclusivity in the startup and investment ecosystem. 

Women-led tech companies achieve, on average, a 35% higher ROI, but the lack of representation in investment firms continues to perpetuate a narrow perspective. Women of color in tech and venture capital often confront compounded biases, experiencing barriers related to gender and racial discrimination. A more inclusive representation within investment firms is crucial for fostering equitable access to funding and promoting diverse entrepreneurial talent. To break barriers and build bridges for women founders, we must:

  • Address venture capital disparities by promoting diversity in investment firms and leadership roles.
  • Advocate for policy changes to address systemic inequalities. 
  • Provide bias training and education for investors.
  • Increase access to mentorship, sponsorship, and networking programs for women founders. 

We must also stand against anti-equality groups who seek to attack firms and initiatives working to amplify historically excluded groups, increase equity in venture capital funding, and level the playing field. 

When we ignore the uphill battle that women founders, especially women of color, face in securing funding, we limit their potential and stall progress; however, by bridging the investment gap, we can empower diverse entrepreneurs to bring groundbreaking ideas to life, ultimately creating a more dynamic and inclusive tech industry. 

The lawsuit against Fearless Fund highlights the urgency needed in work towards dismantling systemic biases ingrained in venture capital, entrepreneurship, and tech. By dismantling these barriers, we don't just rewrite the narrative for women founders and women of color; we reshape the future and kick the door open for innovation, progress, and equal opportunities for everyone regardless of gender, race, sexuality, or ability, to help shape the world through technology. Diverse, resourced, creative voices are necessary to drive solution-driven tech and positively shape the future for generations to come.

Learn more:

  • Learn more about women-led VC firms working to support, amplify and resource underrepresented founders:
    • Fearless Fund seeks to bridge the gap in venture capital to support women of color in growing competitive companies.
    • Founded by Arlan Hamilton, Backstage Capital has invested in over 200 companies led by women, People of Color, and LGBT+ founders, including, Edlyft, a platform, and program helping college students and adult learners complete STEM courses.
    • Anu Duggal founded the Female Founders Fund, focusing on women founders raising seed capital in e-commerce, web-enabled products, and platform development.
    • SoGal Ventures, the first female-led millennial venture capital firm, focuses on companies with diverse, underrepresented founding teams in the U.S. and Asia.

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