Venture capital is fundamentally about identifying outliers - those rare, high-potential founders and their startups that defy the norm and deliver outsized returns. For some time, female founders have been outliers not because of a lack of talent or capability, but due to their underrepresentation in a male-dominated ecosystem. Despite possessing the same, if not greater, leadership and entrepreneurial skills as their male counterparts, they have remained an untapped source of innovation and value. By focusing on female founders, we are not only addressing this market imbalance but also seizing the opportunity to back exceptional, overlooked outliers with the potential for great returns.
How Female-Focused Venture Capital Funds Add Value to LPs: Financial and Strategic Benefits
In today’s rapidly evolving and increasingly competitive venture capital landscape, limited partners (LPs) are constantly looking for ways to diversify their portfolios, increase returns, and tap into underexplored markets. Female-focused venture capital (VC) funds offer a unique value proposition, delivering both financial returns and strategic advantages that strengthen and diversify an LP’s venture capital portfolio, unlocking untapped opportunities and driving the potential for superior long-term performance.
Addressing Market Failure: Why Target Female Founders?
A significant market failure exists in venture capital: less than 3% of global venture capital funding goes to female founders. This disproportionate allocation of capital represents both a social and financial oversight. By targeting female founders, LPs can not only address this market imbalance but also open the door to untapped market opportunities. Female founders often tackle problems overlooked by male-dominated industries, creating innovative solutions for underserved markets.
The Asia-Pacific region, in particular, is vastly underserved by female-focused funds. Artesian’s Female Leaders VC Fund was the first female-focused Series A/B fund in this region, adding a pioneering element that diversifies LPs' exposure beyond traditional regions like North America and Europe.
Access to Diverse Markets and Talent
One of the most overlooked benefits of investing in female-led ventures is access to unexplored market opportunities. Underrepresented founders are building companies that solve problems traditional investors may not even recognize, opening pathways to market niches with tremendous growth potential.
Furthermore, female founders tend to build more diverse teams from the start. Diversity in leadership fosters innovation, leading to more agile, resilient companies capable of navigating complex startup challenges. LPs stand to benefit from the enhanced performance and creativity that diverse teams bring to the table.
Why the Gender Gap in VC Is So Prevalent
The gender gap in venture capital is deeply rooted in historical, structural, and cultural factors. Here are some key reasons why the gap persists:
Limited Access to Networks and Mentorship: With only 11% of VC investing partners being women, female founders often lack access to the high-level networks that male founders enjoy. Since VC heavily relies on personal networks for deal flow and mentorship, this creates an extra hurdle for female entrepreneurs, perpetuating the gender gap in funding opportunities.
Homogeneity of VC firms: Most venture capitalists come from similar educational, cultural, and professional backgrounds, reinforcing a status quo where women and other underrepresented groups struggle to break in.
Bias in Investment Decisions: Unconscious bias often leads male investors, who dominate VC, to favour founders who align with their own experiences - typically male founders. Female founders are frequently questioned more about risks, while male founders are asked about growth, which subtly but significantly impacts the level of support and funding female entrepreneurs receive.
Limited hiring and slow turnover: VC firms, particularly smaller ones, tend to have low turnover, making it challenging to introduce diversity into investment teams.
Perception of a lack of qualified women: While women make up a significant percentage of graduates from top business schools and enter fields like investment banking and management consulting at high rates, the myth that there are not enough qualified women persists.
Lack of role models: The absence of female role models in VC creates an additional barrier, making it harder for women to aspire to and succeed in this industry.
What Every Market Participant Can Do to Help Fix It
Fixing the gender gap in venture capital requires a collective effort from all market participants - LPs, VCs, and founders alike. Here’s how:
LPs can demand more diversity in the funds they back, pushing GPs to include women on their investment teams and in their portfolios.
VC firms can make conscious efforts to diversify their hiring practices, networks, and investment pipelines. Encouraging partnerships between male and female partners can also enhance overall firm performance.
Corporations and industry groups can actively support female entrepreneurs through corporate venture capital initiatives, mentoring programs, and procurement practices that encourage diversity.
Founders can work to create more inclusive teams, and boards, prioritizing gender diversity from the earliest stages of their startups.
Why It Matters for Traditional LPs and Corporations
For traditional LPs and corporations, supporting gender diversity is more than a social imperative - it's a smart investment strategy. Female-led ventures offer:
Differentiation: The evidence is clear - gender diversity in leadership leads to strong, sustainable financial performance. LPs who increase exposure to female-led startups and/or female-focused funds in their portfolios are likely to create differentiated returns and strategic value.
Access to new markets: Female founders often address underrepresented markets, providing LPs and corporations with exposure to unique growth opportunities.
Alignment with sustainability goals: Backing female entrepreneurs helps LPs and corporations align with broader sustainability and corporate responsibility goals, particularly the UN’s Sustainable Development Goal 5 - gender equality and female empowerment.
The Road Ahead: A Call to Action
Supporting female founders isn’t just about correcting an imbalance - it’s about making smart, forward-looking investment decisions. Backing female-led ventures isn’t just about fairness; it’s about recognizing talent, innovation, and leadership where others might miss it.
For LPs, governments, and corporations, investing in female founders means tapping into underutilized potential, diversifying portfolios, and positioning yourself ahead of the curve. It’s a strategic play that not only drives sustainable financial performance but also builds more resilient, innovative companies. The data makes it clear: the talent is there, and the opportunity is massive for those willing to take it.
The venture capital industry is about finding outliers who deliver outsized returns -female founders are that untapped resource. By acting now, you’re not only gaining an edge, but you’re investing in a more competitive and inclusive future that benefits everyone. The time is now.