A photo of Anne Wojcicki, CEO and co-founder of 23andMe, speaking at a conference.
Anne Wojcicki, CEO and co-founder of 23andMe, speaks at the WSJD Live conference in Laguna Beach, California, in 2016. Mike Blake/Reuters

The share of VC-backed startups with women founders has grown dramatically, but Silicon Valley lags behind other hubs.

Despite recent progress, the baseline facts about women-founded startups remain startling. Just 2.5 percent of all venture-capital-backed startups have an all-female founding team. Only 9 percent of the venture capitalists investing in tech startups are women. And even today, only slightly more than one-fifth of all American VC investment goes to startups where at least one of the founders is a woman.

To put this in context, in the United States, women make up more than half (52 percent) of the highly skilled creative class; comprise more than one-third (36 percent) of business owners; and make up 30 percent of all high-tech employment.

Although the number and share of startups founded by women in the United States has improved dramatically, Silicon Valley, the nation’s largest startup hub, lags badly compared to other hubs both large and small.

That’s one key takeaway of a major new study of women-founded startups by Ian Hathaway, who leads research at the Center for American Entrepreneurship and with whom one of us (Richard) co-authored a major study of venture-capital-backed startups across the globe this past fall.

Using data on VC investment from PitchBook, Hathaway tracks the share of startups around the country with at least one woman in the founding team over the period 2005 to 2017. (The startups are distributed across industries, with the three main ones being tech, consumer products and services, and healthcare.) Specifically, Hathaway looks at VC-backed “first financings” of startups—or when venture capitalists initially backed these companies.

The share of venture capital going to women-founded startups tripled between 2005 and 2017, rising from 7 percent to 21 percent.

a graph of venture capital first financings by gender
(Center for American Entrepreneurship)

That’s a big improvement, but the numbers are still low. And the low level of VC investment in women-founded startups is especially disconcerting because, unsurprisingly, women-founded startups perform as well as non-women-founded startups. The share of women-founded startups that go on to raise additional rounds of capital—a key marker of success—is similar to those of non-women-founded companies. The same share of women-founded startups and startups that had no women founders (52 percent over the study period) raised a second financing round within three years. (To look at second and third financings over the study period, Hathaway broke down the sample of startups into cohorts, 2005–2014 and 2005–2012.)

a graph of second round venture capital financings by gender
(Center for American Entrepreneurship)

Startups with a woman founder had a slightly higher rate of raising a third round of funding after five years than startups without a woman founder: 37 percent versus 36 percent over the study period.

a graph of third round venture capital financings by gender
​(Center for American Entrepreneurship)

The rate of success, as measured by companies that made IPOs (initial public offerings), was 3.8 percent for women-founded startups versus 3.7 percent for non-women-founded startups. However, startups with women founders stood a slightly lower chance of being acquired—26 percent within eight years, compared to 32 percent for non-women-founded companies. After 10 years, 34 percent of women-founded companies were acquired, versus 38 percent of companies without any women founders.

a graph of IPO rates of startup companies by gender of founders
​(Center for American Entrepreneurship)

Silicon Valley lags behind other major startup hubs in its ability to generate and support women-founded startups. Just 17 percent of Silicon Valley startups had a woman as a member of their founding team in 2016–17, according to Hathaway. By contrast, in Ann Arbor, Michigan, and Boulder, Colorado, startups founded by women made up, respectively, 58 percent and 41 percent of first financings in 2016–17. Women-founded startups accounted for 25 percent of first financings in Los Angeles and 29 percent of those in New York during the same period.

Leading Metro Areas for Venture-Capital First Financings (2016–17)

Metro area Women-founded share of first financings
Ann Arbor, MI 58%
Memphis, TN-MS-AR 45%
Boulder, CO 41%
Urban Honolulu, HI 40%
St. Louis, MO-IL 38%
Providence-Warwick, RI-MA 36%
Tampa-St. Petersburg-Clearwater, FL 32%
New Orleans-Metairie, LA 30%
New York-Newark-Jersey City, NY-NJ-PA 29%
Columbus, OH 28%
Los Angeles-Long Beach-Anaheim, CA 25%
Sacramento-Roseville-Arden-Arcade, CA 25%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 24%
Boston-Cambridge-Newton, MA-NH 22%
Indianapolis-Carmel-Anderson, IN 22%
Kansas City, MO-KS 22%
San Francisco-Oakland-Hayward, CA 21%
Pittsburgh, PA 21%
Washington-Arlington-Alexandria, DC-VA-MD-WV 21%
San Jose, CA (Silicon Valley) 17%

New York, which actually attracts more venture capital than Silicon Valley (only San Francisco has more), is a better place for women to launch a startup, Hathaway explained. “New York is a major outlier among the big startup hubs,” Hathaway told us via email, “and is in fact nearly the most gender-diverse city in the entire country for startup founders.” He added that this may be driven by the investor base, since five of the six leading venture-capital investors in startups founded by women are based in New York.

When it comes to Silicon Valley, Hathaway notes, the region is likely “saddled by the legacy of male-dominated information-technology and venture-capital industries.” Highlighting the fact that San Francisco has a markedly higher share of women-founded startups than Silicon Valley, he suggests that perhaps the more diversity-conscious “young blood has migrated north.”

One interesting finding of the study, tucked away in a footnote, is that the share of startups with a woman founder is strongly and positively correlated with a metro area’s share of votes for Hillary Clinton in the 2016 presidential election and share of women-founded companies overall. This is true even among the top 50 or so metros for venture-capital activity, which already had a high share of Clinton votes.

America’s startup economy continues to suffer from a stark and troubling gender divide. But just about no place in the United States is worse for women to launch a tech startup than Silicon Valley. It’s high time for that to change.

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