Data reveals obscured positive trends of increasing venture capital dollars for women-founded startups

This is a long-form article on the state of venture capital and its metrics, particularly with regards to women-founded companies. The author argues that aggregate deal value is not an effective metric for measuring progress towards gender equality in startup funding. Instead, they propose using first-financing deals as a more rigorous progress scorecard.

The author presents several arguments against relying on aggregate deal value:

1. Lagging indicator: Aggregate deal value is influenced by late-stage financing into companies formed 5-10 years ago, which doesn’t reflect the current state of access to capital for underrepresented founders.
2. Survivorship bias: Funding after the first round is contingent on performance, so only successful companies are counted in aggregate deal value metrics.
3. Distorting factors: Concentration of founders across industries, capital intensity, stage distribution, and management business planning all impact aggregate fundraising statistics.

To illustrate these points, the author provides examples:

1. Cruise, a men-founded autonomous vehicles company, raised $3 billion in 2021, accounting for nearly 1% of the year’s venture capital dollars.
2. Women founders took in $2.6 billion over 135 deals in the digital health sector, which is still a significant amount but overshadowed by individual high-profile deals like Cruise.

The author also argues that aggregate deal value fails to account for women founders and their companies:

1. Subgroup analysis: Disaggregating women founders into subgroups (e.g., solo female-founded, co-founded) would provide a more nuanced understanding of access to capital.
2. Benchmarking fund participation: Tracking the number of funds participating in first-financing deals with women founders would help identify areas for improvement.

To improve accountability and tracking progress towards gender equality in startup funding, the author recommends using:

1. First-financing deal count: Focusing on the number of first-financing deals secured by women-founded companies as a more meaningful metric.
2. Disaggregated metrics: Breaking down data by subgroups (e.g., solo female-founded, co-founded) to better understand access to capital for underrepresented founders.

The article concludes that relying solely on aggregate deal value is "malpractice" when attempting to measure progress towards gender equality in startup funding. By implementing more rigorous and disaggregated metrics, the venture capital ecosystem can better track its progress and work towards a more equitable future.