COVID-19 & Female Founders: Impact of the Recession

Recently, The Exchange analyzed current statistics regarding the venture capital secured by women entrepreneurs. To reiterate, the findings were unfavorable.

PitchBook’s data showed that US-based female founders obtained $434 million through 136 funding rounds in the third quarter of 2020. This figure represents a decrease from the $841 million raised in the second quarter of 2020, providing a point of comparison. These results marked a significant shift from the industry’s position at the close of 2019.

The Exchange provides coverage of startups, markets, and financial matters. It is published each weekday on Extra Crunch, and a newsletter version is available every Saturday.

The substantial reduction in accessible funding is hindering the rate at which women are launching new businesses during the COVID-19 pandemic. Additional elements are also contributing to this trend, as indicated by new information from the Female Founders Alliance (FFA), but the lack of funding is exacerbating the situation.

In general, the rate at which women are expressing plans to start a company is decreasing, based on a group of women being monitored over time by the FFA.

The FFA, a network of women founders and a startup accelerator dedicated to promoting increased gender representation in the technology sector, assembled a group of 150 women from technology centers identified as having a strong potential for entrepreneurial ambition, as per their data collection. They were surveyed regarding their entrepreneurial objectives both prior to the onset of COVID-19 and again in September of this year.

The differences in responses between the pre-pandemic period and the present are notable. Let's analyze this data in relation to the information we reviewed last week concerning funding for female founders and explore any insights we can gain.

Concerning Declines

Prior to the pandemic and the subsequent economic and social disruptions, a survey of 150 women revealed that 54.7% expressed a high likelihood of eventually launching a business. An additional 32.7% indicated they were somewhat likely to do so. Approximately 12.7% stated they were unlikely to ever start a company.

This indicated that roughly 87% of the women surveyed were considering establishing a company at some point.

The Female Founders Alliance revisited the same group in September, as the pandemic continued, and observed a shift in responses:

• 34.4% of respondents stated they were “equally likely to start a company, though potentially at a later date than originally planned.”
• 32.8% remained “equally likely to start a company, and on their initial timeline.”
• 16.8% indicated they were “less likely to ever start a company once the pandemic subsides.”
• 16% reported having already initiated a company within the past six months, a venture they had not previously considered.

A clear interpretation of this data reveals that approximately 51% of the group will either postpone the launch of their business or forgo the idea altogether, suggesting a reduction in the overall number of potential female founders.

The fact that around one-third of respondents maintained their original timelines is encouraging. Furthermore, the approximately one in six who had already founded a company is a positive development.

Notably, among the 16% of women who accelerated their company founding, only 5% cited job loss as the reason. The majority, around 64%, were motivated by identifying a promising idea or opportunity and seizing it. (Consider this instance! And this one! Here's another example! What about this fourth case?)

However, the reasons provided by the 51% of women who were less inclined to start a company, or anticipated delaying their plans, were discouraging:

• 47.8% attributed their decision to “financial concerns.”
• 20.3% cited a need for “employer-provided benefits.”
• 20.3% pointed to “increased caregiving responsibilities.”
• 5.8% mentioned “stress, fear, and a lack of motivation.”
• 4.3% indicated “all of the above” as contributing factors.

While the current economic recovery may alleviate some of these challenges, it won't resolve them all. An improving economy will likely lessen financial worries, and caregiving demands could decrease as schools and daycares fully reopen (or partners increase their involvement in shared responsibilities). However, given the gradual pace of recovery, the data suggests that some women who otherwise would have founded companies will ultimately not do so.

This loss of potential innovation is detrimental to society as a whole.

In conclusion, let's revisit our starting point. Remember our earlier discussion regarding the recent decrease in capital available to female founders? Well, within the FFA data, which indicates that nearly half of women are planning to delay or cancel their entrepreneurial endeavors due to financial reasons, there's an important detail to consider.

The Female Founders Alliance elaborated on this response, providing further context (with emphasis added by TechCrunch): “The most frequently cited reason [for women delaying or cancelling their entrepreneurial plans] was financial stability, encompassing the need for a consistent income, and the limited funding opportunities for women entrepreneurs.”

It is unsurprising that limited access to capital results in fewer women establishing businesses. While some of the decline may be attributed to women withdrawing from the entrepreneurial landscape before securing funding, the connection is bidirectional: some women did not launch a company because they were unable to obtain capital.

Consequently, the current landscape for founders and venture capitalists is moving backward in time, becoming less diverse. 2020 proved to be a year of disappointments.