Venture capital powers innovation, yet investment decisions still favor the familiar. From the original design of the industry to the women reshaping its future, the patterns that drive investment may be poised for change. Is venture capital ready for a new outfit?
On October 25, 1988, the Women’s Business Ownership Act (H.R. 5050) was signed into law, granting women the right to own and operate businesses without a male cosigner. This landmark legislation was a breakthrough for women’s economic independence. Yet by that time, generations of deal making had already embedded a pattern of men investing in men.
Pattern matching is woven into the fabric of venture capital itself, such that investment in women-led startups has been stagnant at only 2% for more than 15 years, dropping even below that percentage in 2025. Venture capital, founded by men, invests in the familiar. Whether you mark the birth of the industry in 1946 on the East Coast with the establishment of the American Research and Development Corporation, or in 1961 on the West Coast with Davis & Rock and the rise of Silicon Valley, there is one truth: Men invested capital in men for decades before women could even own a business.
PATTERN MATCHING AND THE SCIENCE OF RETURNS
Fast forward to 2013, and pattern matching had become part of the investor’s craft. In a New York Times profile, a partner at Y Combinator (YC) described reviewing video interviews with founders applying to the accelerator to identify predictors of failure: “When you have to talk yourself into something, it’s a bad sign.” Such rapid assessments may well have relied on pattern matching. With YC partners predominantly male, could this instinct have influenced cohort selection?
The stakes are high: In the Winter 2024 batch, YC admitted just 260 companies from more than 27,000 applications—an acceptance rate under 1%. Based on self-reported data, only 21% of those companies had a woman founder, and just 11% of the founders were women.
If decision making in venture capital were driven by data rather than psychology, more women-led startups would be funded. Women-led startups generate more revenue per dollar raised than their male counterparts, and companies with a female founder have outperformed all-male founding teams by 63%. Morgan Stanley estimates that investors lose $4.4 trillion each year by underinvesting in women and people of color. Yet year after year, only about 2% of venture capital dollars flow to women-led startups.
DISRUPTING AND UNRAVELING THE PATTERN
To address the lack of access to capital, organizations are working on multiple fronts: expanding the pipeline of women entering venture capital, accelerating the career growth of emerging fund managers, and providing mentorship to empower female founders. A systemic issue requires multiple points of disruption to effect a systemic shift.
Sourcing is a pivotal leverage point, influencing which founders are included in the consideration set of strategically aligned, high-potential deals. Twenty-eight percent of venture capitalists are women, and many of them—analysts, associates, and principals in male-led firms—are responsible for sourcing startups as part of the deal flow process.
What if women sourcing deals were able to more efficiently identify women-led startups aligned with the investment thesis of the venture capital firm, expanding the consideration set and unraveling the threads of pattern matching?
Efficiency means moving beyond the familiar networks—the same elite schools, the same geographic hubs, the same social circles—that reinforce pattern matching.
MOVE THE NEEDLE
Thank you to the women, and especially the National Association of Women Business Owners, who advocated and lobbied for this landmark legislation. And to the women entrepreneurs and the women invested in them who still persevere, knowing that progress may not be fully realized in their lifetimes.
Shannyn A. Smith is founder of The Capital Boutique.
