Despite the challenging fundraising environment, women-led venture capital funds are still achieving profits by 2023. According to Venture Capital Journal, the funding rate of women-led funds has increased to about 3% of the $107 billion that global venture capital funds raised last year, up from below 2% in the total in 2022.
INVESTING IN WOMEN-FOUNDED STARTUPS IS TRENDING UPWARDS
Although they make up a small portion of the total funding, investment capital for women-founded companies in the US has been trending upwards in recent years. This development is partly due to the establishment of more incubators dedicated to female founders. As a result, many new companies founded by women have emerged, and many venture capital funds have focused on female founders.
“The access to capital for women founders in the US right now is truly historic,” said Trish Costello, founder and CEO of Portfolia. “We have about $25 trillion worth of assets in the US and we’re heading towards owning close to 50% of the wealth assets that women have in the US. And that wealth will be a power asset if we use it.”
Portfolia creates and manages approximately 16 venture funds designed for individual investors looking to invest in the portfolios of most women-led startups and wanting to learn more about venture capital. The company has invested in over 140 companies, most of which are founded by women.
Costello said, “It’s all the money we invest in companies that are going to improve our lives and bring us profit.”
Costello said that while about 75% of the company’s investment portfolio is poured into startups with female CEOs, about 25% of male-led startups also tackle women’s issues, such as YourChoice Therapeutics, which is developing male contraceptives.
One of the beneficiaries of the growing trend of investment in female founders is NasaClip, founded by Dr. Elizabeth Clayborne, an emergency room physician and a mother of two. She developed a device that helps control post-treatment bleeding for patients in the emergency room, recognizing the need for hands-free first aid solutions.
She said this startup has raised $3.25 million in funding in the past four years, mostly from female investors. This money has helped her bring the product to market, and her company is currently generating revenue.
“When women invest in women, they’re not just bringing money; they’re introducing the social network that’s essential for success,” Clayborne said. “I don’t think I would have succeeded if I didn’t have women investors trusting me from the start.”
OPPORTUNITIES FOR FEMALE-FOCUSED VENTURE CAPITAL
Costello said her desire to lead a female-focused venture capital firm was sparked a decade ago, after a male colleague told her that men wouldn’t invest in women’s health issues.
“I realized there were areas of investment that could be highly lucrative, and investing in startups with women leaders and founders felt really comfortable,” Costello said.
Portfolia launched its first fund in 2015, and part of the fund’s mission is to train the next generation of venture capitalists. While fund managers make investment decisions, investors are invited to attend meetings and appraisals so they can ask questions of entrepreneurs and offer their deep insights.
Costello said, “Everything we do is using our community, our knowledge, and our expertise to invest and help companies succeed.”
Investments in Portfolia funds must be accredited, which the Securities and Exchange Commission defines as individuals with a net worth exceeding $1 million, excluding primary residence, or with an annual income surpassing $200,000 for the past two years ($300,000 for a married couple) and a reasonable expectation of similar income for the current year.
The average investment in Portfolia funds is $35,000, and investments can go up to $500,000. The minimum investment is $10,000, and each investment in 10 to 12 companies.
Costello said, “We let them come in and essentially try out what venture capital is.”
Venture capital is high risk but has the potential for high returns- and studies have shown that women-led startups yield a higher return on investment than male-led ones.
However, investments are illiquid and may take several years to generate any returns. Many startups fail. Therefore, financial advisors typically recommend allocating no more than 10% of a client’s assets to high-risk investments.
