By June Manley
The numbers don’t lie. Female founders are still receiving just a small portion of the total venture capital funding. According to data from PitchBook, female-founded startups only received $1.9 billion, or 2.2%, of the venture capital funding raised in 2017. Meanwhile, teams with all-male founders received about $66.9 billion, or approximately 79% of all venture capital funding.
Assessing Early-Stage Startups
The challenge venture capital firms face when assessing an early-stage startup’s opportunities and risks is that the metrics which are typically associated with later-stage and public companies are absent. As a result, many VC firms tend to rely on “gut feelings,” following a continuous pattern of investing in the same types of startups with the same types of founders over and over again.
The outcome has been a lack of diversity in early-stage deals and the types of founders receiving venture capital, creating a vicious cycle in which bias and prejudice dominate the venture capital decision-making process. Early-stage founders, especially female and first-time minority founders, face systemic hurdles to VC funding. Many also lack the social connections to navigate the VC-funding process and struggle to understand what matters most to VCs and how they should compare themselves to their peers in order to improve or achieve the same levels of funding.
A New Approach to Measure Startups Objectively
To solve these problems, the nonprofit organization Female Founders Faster Forward (F4) developed the Startup Investment Model Index, or SiMi. SiMi is aimed at objectively measuring a startup's maturity, opportunity, and risk while attempting to eliminate bias and prejudice in the VC decision-making process.
Available for free for both investors and founders to use, SiMi assesses early-stage startups by beginning with an evaluation from the founder or investor of the eight core aspects of the company. This initial information is used to identify the maturity stage of the startup.
At each maturity stage, different factors become more important and then SiMi creates a weighted score based on the importance of these maturity-stage factors. Finally, SiMi delivers an objective assessment of a startup and provides a “SiMi Score” so that investors and founders can make better decisions based on a measured analysis.
SiMi is similar to a FICO Score, but for startups. It provides an easy-to-evaluate common language for gauging a startup's health and market viability as well as recommends the best fits for startups and investors. In other words, the SiMi Score levels the venture capital playing field for all founders from the beginning, removing all other factors such as gender, race, social connections, etc.
The SiMi methodology has been independently validated in a recent report in collaboration with Northeastern University. The executive summary of the report can be downloaded for free here.
There is no single, definitive answer to the gender gap in venture capital funding. However, there are innovation solutions like SiMi that can be used to remove prejudice and bias from the equation in order to level the playing field and these tools are becoming available for those who wish to make a change.
June ManleyJune Manley is the Founder of Female Founders Faster Forward, a nonprofit with 501c/3 status on a mission to increase the VC investments for female led startups from 3% to 20% by 2020.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
