By Tasneem Dohadwala
The venture capital industry is consolidating rapidly, with the number of active VC firms in the U.S. dropping from 8,315 in 2021 to 6,175 in 2024. As capital becomes concentrated among fewer players, underrepresented founders — particularly women-led startups — are facing even greater challenges when it comes to securing funding.
Even though women-led startups consistently show lower failure rates and higher returns, startups with only female founders still consistently receive less than 2% of VC funding. This is largely due to implicit biases and pattern recognition. Investors often favor founders who resemble past successes — typically male-led companies. Larger firms, in particular, prioritize established networks and lower-risk investments. That makes it even harder for entrepreneurs of diverse backgrounds to break into these circles.
Adding to this challenge is rising inflation and economic uncertainties, which have created a greater reliance on bridge rounds and insider-led funding. This trend disproportionately benefits well-connected founders, while underrepresented entrepreneurs who — in a vicious cycle — often lack a deep investor network, are left at a significant disadvantage.
Alternative funding
As operational costs rise, startups need more capital, yet with fewer firms actively investing, securing additional funding is increasingly difficult. Furthermore, large VC firms are shifting their focus toward capital-intensive industries such as AI and biotech, leaving fewer opportunities for diversity to succeed in other high-potential sectors such as consumer, healthcare and sustainability.
For underrepresented founders navigating this shifting landscape, it’s crucial to explore alternative funding sources such as grants, revenue-based financing and corporate venture partnerships. Strengthening mentorship networks and engaging with diversity-focused investment funds can also be vital in expanding access to capital.
Ultimately, institutional investors and LPs must push for greater transparency in diversity metrics and actively support funds that prioritize diverse founders. Despite the significant barriers posed by VC consolidation, women and minority entrepreneurs continue to demonstrate remarkable resilience. By advocating for equitable funding and expanding access to alternative capital, underrepresented founders can work toward securing the investment they need to thrive in 2025 and beyond.
Tasneem Dohadwala is the founding partner of Excelestar Ventures, where she and her team are active investors in founders that exhibit compelling medical technology, deep technology and beyond. Previously, her experience included working in financial services on the sell-side at Lehman Brothers and Matrix Partners. She passionately and deliberately mentors and searches for female-led companies and believes that investing in women is the best way to bring more women into leadership roles. At her helm, Excelestar Ventures has been named one of the top 100 Women-Led Businesses in Massachusetts by The Boston Globe. She is also the managing partner of the Golden Seeds Boston Chapter. She is a graduate of Wellesley College and Harvard Business School.
Illustration: Dom Guzman
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