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The impact of COVID-19 on funding female-led startups

Despite the recent venture capital boom, women are still not proportionality represented, accounting for just a fraction of recent funding.
Published on Aug 25, 2021
The impact of COVID-19 on funding female-led startups

U.S. startups raised a record $150 billion in 2020, up 12% over the previous year, but funding to venture-backed companies founded by female entrepreneurs dropped 22% during the first pandemic year to 2.2%. According to Pitchbook data, the growth in funding is not slowing down, with the first half of 2021 already matching at $150 billion in deployed venture capital to high-growth U.S. startups. However, despite this venture capital boom, women are still not proportionality represented, accounting for just a fraction of that funding.

According to PitchBook, in 2020, a year featuring record exits of venture-funded companies to the public markets – including the explosion of the use of special purpose acquisition companies (SPACs), only two U.S. female-only-founded companies exited. Both exits were through acquisitions, not via IPOs or SPACs.

Funding for female-led startups took a major hit in 2020

According to Pam Kostka, CEO of All Raise, the effects of last year’s trends on female founders crystallized during the third quarter, when male-founded businesses took in the most funding of any quarter ($37 billion) and investment in female-founded companies dropped to its second-lowest point ($630 million). That quarter may have exhibited a lag effect, with the results reflecting the canceled pitch meetings of March and April 2020 early in the pandemic.

During this time, the realities of the pandemic’s impact on women became clear across all segments of the economy. 865,000 women dropped out of the workforce in September 2020, when children returned to school remotely, triggering a widespread childcare crisis.

There was also a steep downward turn toward funding to female-led startups. Despite the big money that flowed into startups in 2020, companies founded solely by women received less investment than in 2019, both by share of the pie and total dollars. Female-founded companies raised $3.3 billion in 2020, or 2.2% of the year’s total sum, compared to $3.5 billion and 2.6% in 2019.

2021’s outlook

As our world slowly starts to return to a new normal, VC funding is significantly increasing, impacting all funding areas, including female-led businesses. VC firms with at least one female decision-maker have raised over $40 billion every year since 2018, and 2021 is on pace to set a new high-water mark. In the first half of 2021, U.S. venture-backed companies with a female founder or co-founder took in $25.12 billion of the $150 billion overall funding.

However, the gap in funding between all-women and mixed-gender teams continues to grow, with female-only founded startups’ taking in only $2.7billion of funding in the first half of this year.

So while the total and average deal value for companies with only female founders have grown overall throughout the years, they are far behind the growth seen by those with male and both male and female founders, according to Pitchbook.

The difference in fundraising between companies with only female founders and those with male and female founders has increased in recent years, and 2021 shows the most prominent gap yet.

The Avanta Ventures’ commitment

Avanta Ventures and Studios are cognizant of these market dynamics and are proactively searching for strategically relevant female-founded startups to accelerate and invest in.

Through the Avanta Ventures Studios program, led by our Principal, Neda Blocho, we have partnered with 17 startups, 41% of which were female and/or minority founded.

Avanta Ventures is proud to partner with some outstanding female founders, who each day choose to challenge these dynamics and blaze their own path. In celebration of their efforts and to inspire other aspiring female entrepreneurs, we asked some of them to share the most important lesson they learned as a female founder, which we shared in our article, Leadership lessons from outstanding female founders.

We are committing a concentrated, deliberate, and genuine effort to connect with a broader community of female and underrepresented minority entrepreneurs to fuel continuous innovation in the Insurtech and Mobility markets. Helping us on this journey to meet incredibly talented founders are organizations such as All RaiseCulture Shift LabsBlackVCLatinxVC, and Startup Runway, just to name a few!

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We remain eager to explore new opportunities, partnerships and collaborations with promising start-ups. If you have an idea or proposal that aligns with our mission, we encourage you to reach out to us.

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