VCs Invested Record-Breaking $5.6 Billion in Female-Owned Businesses in 2021

In 2021, venture capitalists invested a record-shattering $5.6 billion in female-owned businesses – an increase of $2 billion from the previous record of $3.6 billion set in 2019, before COVID officially hit the U.S. Clearly, venture capitalists think it’s time to start investing in companies again, especially women-led startups.

Though, of concern: the Midwest hasn’t benefited like other regions. No Midwest state cracked the top ten, and several are at the bottom of the list.

This sudden flurry of investment has shaken up MerchantMaverick.com‘s annual ranking of the best states for female entrepreneurs. Some states join the other winners for the first time, while others have dropped in rank. Read the full report here.

Key findings on venture capital and female-owned businesses

• There has been a dramatic increase in venture capital funding allotted to female-led startups, allowing more startups to form and ultimately succeed.
• Startups in second-place Texas especially benefited from the upward trend in venture capital investments, as the state’s five-year total for female-focused venture capital investments grew from $365 million in our report from last year to $814 million this year.
• Last year’s No. 1 Colorado retained its first position.
• Top 10 newcomer’s Arizona’s rise is partly because of the burgeoning startup scene in Phoenix.
• The Midwest is completely absent from the top 10, indicating widespread failure to draw investment dollars.

Researchers at MerchantMaverick.com, a business product comparison site for small business owners, analyzed data from a variety of sources including The US Census Bureau’s 2020 American Community Survey, PitchBook’s US VC Female Founders Dashboard and Kauffman Indicators of Entrepreneurship (to name a few) to bring you the Best States for Women-Led Startups in 2022.

These lists below offer a quick view, with the full report here:

Best and worst states for female-owned businesses

THE TOP 10 STATES FOR WOMEN-LED STARTUPS IN 2022:

#1.  Colorado
#2.  Texas
#3.  Florida
#4.  Washington
#5.  Maryland
#6.  Montana
#7 (TIE)  Massachusetts
#7 (TIE) California
#9.  Arizona
#10. Virginia

THE BOTTOM 5 STATES FOR WOMEN-LED STARTUPS IN 2022:

#46.  Utah
#47.  North Dakota
#48.  West Virginia
#49.  Iowa
#50.  Mississippi

Methodology

To best determine the best states for women-led startups, the researchers selected and weighted the following metrics:

Percent of employer firms led by women (15 percent of the overall score):

This metric compares the number of employer firms led by women to the total number of employer firms in the state, per data from the Census Bureau’s 2020 Annual Business Survey.

Percent of employees at women-led firms (15 percent):

This metric compares the number of employees at women-led employer firms to the number of employees at male-led firms in the state, per data from the Census Bureau’s 2020 Annual Business Survey.

Percent of women self-employees in their own business (15 percent):

This metric compares the number of women self-employed in their own business to the total number of women in the state, per the US Census Bureau’s 2020 American Community Survey.

Average income of women self-employed in their own business (15 percent):

This is simply the average yearly income for self-employed women business owners, per the US Census Bureau’s 2020 American Community Survey.

Total venture capital invested into women-led startups (15 percent):

For this metric, data from PitchBook’s US VC Female Founders Dashboard was recorded to calculate the amount of capital invested into venture-backed startups led solely by women within each state. Data over a five-year period from 2017 through October 2021 was included.

Percent of startups still active after one year (10 percent):

Also known as startup early survival rate, this metric measures the immediate survival of startups and uses data from the 2020 edition of the Kauffman Indicators of Entrepreneurship.

State income tax rates (7.5 percent):

Each state’s highest income tax bracket for 2021 was tallied, with lower tax rates being considered better. States with lower income tax rates can provide entrepreneurs with greater earning potential.

Unemployment rates (7.5 percent):

These rates were pulled from the Bureau of Labor Statistic’s October 2021 update. For the purposes of this report, unemployment rates are used as a snapshot to gauge the economic health of each state.

“It’s wonderful to see signs that the economy is bouncing back, it’s especially gratifying to see that women-led businesses are benefiting,” says Julie Titterington, Editor-in-Chief, MerchantMaverick.com.

About MerchantMaverick.com

With more than 700,000 page views per month, MerchantMaverick.com is an online publication devoted to providing business owners with accurate, unbiased reviews for their businesses. The company’s goal is to provide the most honest, accurate and useful reviews of business products and services to empower entrepreneurs with businesses of all sizes.

Read Small Businesses After COVID: Digital First, Female-Owned and Optimistic.