When Hannah Olson was in college, she was diagnosed with chronic Lyme disease. The severity of her case required Olson to have a PICC line — essentially, a permanent IV that funnels antibiotics into the patient eight hours a day — inserted in her arm. As a young woman hoping to start her career in marketing, Olson felt anxious about telling her new boss about her condition and its impact on her day-to-day life. 

“I felt so much fear and shame and stigma,” Olson told Institutional Investor. “No one wants to go into their first job ever and have to be hooked up to an IV all day. I ultimately ended up at a company that wasn’t inclusive and didn't allow me to administer my meds at work, so I was forced to choose between my health and my work.” 

In 2020, Olson founded Chronically Capable, a job-matching platform that connects people with disabilities and chronic illnesses to jobs with accommodations. A month after the platform launched, the Covid-19 pandemic hit. For Olson, the pandemic was a blessing and a curse. Themes such as diversity and inclusivity — the space in which Chronically Capable sat — dominated the culture, but negative macroeconomic trends and the male-dominated VC space made funding difficult. Despite all that, Olson began to fundraise in October 2020. 

“It’s very uncomfortable to be the only woman in the room,” Olson said of her first few months trying to raise capital from investors. “And not only was I a woman, but I was talking about illness, which makes people uncomfortable.” 

But as soon as 2021 hit, Olson explained, everything changed. By June, the money was rolling in. “We’re actually just about to close our round, which is oversubscribed by a significant amount,” she said. 

Olson’s experience isn’t uncommon. The onset of the pandemic in 2020 hit female venture capital founders harder than their male counterparts, although in terms of deal activity, the 2021 recovery period for women was stronger than the recovery of the overall market.  

Nevertheless, a joint study released on Tuesday by PitchBook, Beyond the Billion, and J.P. Morgan showed that venture dollars invested in female-founded companies decreased by 3 percent year-over-year in 2020, while the venture market as a whole generated a 16.2 percent increase in returns over the same period. For female founders, deal count also fell 2.2 percent from 2019 to 2020.

Sarah Chen, co-founder and managing partner at Beyond the Billion, a company created to support venture funds that drive investments into female-founded companies, attributed the disproportionate impact on women to a number of factors, including the established and chronic trend of underfunded female founders, the male-dominated VC space, and macroeconomic pressures such as the asymmetrical burden of childcare on women. Chen also cited the role of unconscious bias in VC, particularly its role during times of crisis. 

“We’ve seen a lot of [old] patterns of behavior [resuming] in times of risk and crisis,” Chen told II. “Women already get such a small percentage of the larger pool of capital, which means a lot of them are in the early stages and are not as robustly funded as some of the all-male teams. So with that historical trend in mind, women, in a time of crisis, don’t have that runway to get funded in the way that all-male teams do.” 

Chen said that asset owners struggle with structural and legacy issues that systemically disadvantage women founders. “A lot of institutional investors can’t write a check that’s smaller than $100 million,” she said. “They can’t be more than 30 percent of a company. And they’re still bound by this legally-attributable track record. If you look at the subset of funds that have women GPs right now, a lot of them fall in the category of ‘emerging manager,’ which is fund one, fund two, and fund three. If you think about that lifecycle, it’ll be 10 to 15 years before she’s considered an established player. And that means that women are at a disadvantage.”  

Even when the markets began to recover from the pandemic, female founders still struggled to generate capital. Between the second and third quarters of 2020, the overall VC market saw a 28.2 percent rise in deal value, but female-founded companies saw 8.1 percent fewer dollars, the report said.

“When the pandemic hit and everything increased in risk, VCs reverted back to what was familiar and invested in their closed networks, so female founders had a harder time raising,” said Cheryl Campos, head of venture growth and partnerships at Republic, a financial technology company, in an e-mail to II. “It’s unfortunate but not surprising, and that’s why we need diverse investors to invest in diverse entrepreneurs.” 

A Rebound For Women

In the fourth quarter of 2020, however, the outlook for female founders began to shift. While the deal value of the overall VC market fell 7.4 percent, the deal value for female-founded companies increased by 19.5 percent. Between December and November 2020, female-founded companies saw a 54 percent increase in deal volume, while the overall market saw only a 24 percent increase. Also in 2020, female-founded companies finished out the year and exited with a total of $24.1 billion, a 32 percent year-over-year increase from 2019. The overall market only increased by 8 percent.

The upward trend continued into 2021. This year proved to be a record year in VC exit activity for female-founded companies: Through the third quarter of 2021, almost $59 billion was sold off. In fact, in terms of exit activity, female founders saw stronger performance than the overall VC market. While the overall market was up 101.5 percent, the exit activity for female-founded companies was up 143.6 percent year-over-year. The authors of the PitchBook report attribute this strong activity to the rapid pace at which female-founded companies make exits. In 2018, the average “time to exit” was seven years, both for female-founded companies and the overall market. In the years between 2018 and 2021, the median time to exit for the overall market increased, while the time to exit for female founders decreased. In 2021, the median time to exit in the overall market is 7.7 years; for female founders, it’s 6.7 years. 

“[This] points to superior business performance for companies with women in leadership positions,” the report says. “This is an important trend [that] limited partners (LPs) — the wellspring of the VC industry — [can use] to push their general partners (GPs) to invest in more female founders.” 

More Female Representation in All Stages of VC

The authors argue that to maintain and increase the level of capital flow to female founders, more representation at all levels and stages of the VC process is required. According to the report, the period from 2019 to 2021 saw a slight increase in the number of female GPs, while the percentage of females in the entire population of GPs in the US increased from 12 percent in 2019 to 15.4 percent in 2021. 

An increase in female check writers has a measurable impact on female founders. According to a 2019 PitchBook report, female founders are twice as likely to invest in startups with one female founder, and three times more likely to invest in a female CEO.

Over the past decade, there has also been a significant increase in the number of female angel investors, who are a lifesaver for female-founded startups that lack the robustness to seek institutional capital. According to the PitchBook report, the ten-year period from 2011 to 2021 saw the number of active female angel investors in the U.S. increase from 125 to 895. As a result, female angels are funding female founders: From 2017 to 2020, the number of deals for female founders that were financed by female angels increased by 67.8 percent. 

In an e-mail to II, Lolita Taub, a co-founder and general partner at the Community Fund, an early-stage venture fund, said that the trend is clear: “With more woman-led funds, we will see more women founders funded. [The] data shows that.”