TLDR:
- Seed stage fundraising became more challenging in 2023 due to a tightening in the startup fundraising scene.
- Underrepresented founders faced disproportionate challenges in securing funding in 2023, with female and diverse teams raising less on average.
A recent report by DocSend highlighted the funding divide in the startup ecosystem, showing that the venture downturn has now hit the seed stage after affecting late-stage companies previously. In 2023, pre-seed and seed-stage startups in the US raised roughly half of what they did in 2021, with underrepresented founders facing additional challenges despite increased discussions around diversity and inclusion in the tech industry.
Female and diverse founders worked harder to raise less than their peers, with all-female teams raising 43% less than all-male teams. Diverse teams also faced challenges, raising 26% less on average than all-white teams. The report also revealed biases in investor meetings and funding amounts, with underrepresented founders experiencing disproportionate levels of friction and bias during the fundraising process.
While there is a push for more networking events and initiatives to support female and diverse founders, the report suggests that performative activism, such as hiring diverse non-investment partners without improving funding outcomes, has not led to significant changes. Regulatory support, such as California’s Senate Bill 54, aims to encourage investors to consider deal flow from alternate sources and ensure fair access to capital for underrepresented founders.
Ultimately, the report emphasizes the need for investors to look beyond traditional patterns and backgrounds when evaluating founding teams, as demonstrated by the success of founders like Melanie Perkins of Canva. Digging deeper into teams that may not fit the typical venture investment mold can lead to more diverse and successful partnerships, providing a competitive edge for investors while supporting underrepresented founders in the startup ecosystem.
