Atlantic Canada looks set to post a banner year for startup funding, but one category of company represents a well of untapped potential: those led by women.

Companies with women in their c-suites are not only underrepresented in the innovation community, but also raise far less money on a proportional basis than do male-run businesses. Entrevestor’s 2020 Startup Data Report, released last month, shows that just 14 percent of Atlantic Canadian startups are female-led, and they raised just 3 percent of equity funding.

Rhiannon Davies, a co-founder and managing partner at the female-focused venture capital fund Sandpiper Ventures, said research from venture capital funds and consulting groups shows that companies with women in senior roles significantly outperform their male-dominated counterparts.

“I think it's really important to recognize this as an opportunity and not as a social construct issue,” she said. “Because if we all start to change our mindset and realize that... money and growth can be found while also doing good, I think it's only then that we'll actually start to crack this nut and start to make a change.”

And there’s plenty of change to be made. Entrevestor’s estimate that 3 percent of investment went to female entrepreneurs is overly cheerful because it omits stock market funding, which accounted for more than a quarter of the $206.2 million raised by startups and went exclusively to men.

Women entrepreneurs raised just $5.3 million in 2020, and $1.2 million of that was money contributed by the founders themselves, according to Entrevestor's data. The $4.1 million that was contributed by outside investors represented less than 2 percent of all equity funding that year. And just $1 million came from venture capitalists.

In fact, the fundraising numbers got worse last year, not better. In 2019, companies led by women raised $16.5 million -- 12.5 percent of total funding, excluding Verafin’s outlier $515 million growth capital raise. 2020 represented an $11.2 million drop.

Click Here To Download Entrevestor's 2020 Startup Data Report.

Davies said she suspects part of the reason for the funding decrease was venture capitalists focusing more on backing companies in which they had already invested, as a reaction to the pandemic and its attendant economic volatility.

“Venture capital, oddly enough, is quite risk averse,” she said. “When it comes to diverse founders, there seemed to be sort of an additional reactivity, and a doubling down on existing portfolios and things like that. I think that served to really reinforce the issue as it existed.”

Funding data is always irregular because not every company raises capital every year. But in the last two years, even excluding the Verafin deal and stock market funding, female-led ventures accounted for less than 8 percent of the total funding in Atlantic Canada.

Meanwhile, investors elsewhere are profiting handsomely from incorporating women-led companies into their portfolios.

San Francisco’s First Round Capital calculates that its portfolio companies run by women produce a return on investment that is fully 63 percent better than its male-led startups.

And Boston Consulting Group estimates that female founders generate 78 cents of revenue for every dollar invested, compared to just 31 cents from male founders.

Davies said she believes that data can convince investors to allocate more of their investment dollars to women.

“I think that education should be focused more on the drivers that each individual decision-maker is going to be using as a metric, identifying that this is not just a social issue, but it's a huge business opportunity,” she said. “There is a great opportunity to invest in diversity and inclusion, and that's been proven in many other jurisdictions outside of Canada. And we're lagging significantly behind.”