Annual equity report 2023

Authors:
Peter Walker, Kiley Roache
Read time:
13 minutes
Published date:
December 1, 2023

Every year, Carta reports on the state of equity in the venture ecosystem. Through the aggregated and anonymized data from tens of thousands of startups employing over 1.5 million people, we examine how opportunities to found companies, raise venture funding, and work at startups are distributed according to race and gender.

This report began in 2018, in partnership with #ANGELS to look into equity (employee ownership) distribution by gender. The report has expanded since then, looking closely at race and ethnicity, and how they interact with gender. As the report has grown, the goal has remained the same: to gather, analyze, and share data on the state of startups to see where inequities exist throughout the entrepreneurial ecosystem.

Unfortunately, this year is another reminder of the work that remains to be done. Over the past year, rising interest rates and a pullback in venture capital investment have made it harder for all founders to start and grow their businesses. However, our data shows that this environment has had an outsized impact on women founders and founders of color. While previous years showed some progress, this year is a reminder that time alone does not move us forward. Across the startup ecosystem, we must work actively to build a more fair and equitable industry.

Employees

Race & Ethnicity

The rate of hires who identify as belonging to historically marginalized communities declined to 25% of all hires during 2023, the smallest figure in the past six years. Between 2013 and 2021, the proportion of hires from diverse backgrounds increased eight consecutive years. Now, it has fallen in each of the past two.

As a point of clarification, this data comes from U.S.-based stakeholders who opted to fill out a demographic profile page for the purposes of aggregated, anonymized equity compensation analysis.

This year’s biggest decline came among Hispanic employees, who went from 6.7% of new hires in 2022 to 5.5% in 2023. The proportion of new hires who are Black dipped from 2.6% to 2.3%, its lowest point in the past four years.

The way equity value is distributed among startup employees of different races and ethnicities looks very much the same as it did 10 years ago. There are only marginal differences when comparing equity distribution among employees hired between 2014 and 2018 against new hires from 2019 through 2023.

Over the past five years, South Asian and Hispanic employees have begun to make up a larger segment of the overall pool. Yet despite those gains, they’re receiving a smaller percentage of overall equity. The share of equity value among East Asian employees has also declined, while the share of equity value among white employees has increased from 73.6% to 75.1%.

Both Black and Hispanic employees have seen the gap widen between their percentage of the workforce and the percentage of equity they receive. This suggests that these groups may be underrepresented in the types of leadership positions that are more likely to receive significant equity compensation, such as chief technology officer and CEO roles.

Gender

The proportion of new equity-receiving hires who are women dipped slightly to 35% in 2023, the first annual decline in the past decade. Before this slight reversal, the proportion of new hires receiving equity who are women had been growing slowly but steadily, rising from 23% in 2013 to 36% in 2022.

Cumulatively, over the past 11 years, 34% of new hires who received equity are women.

Over the past five years, 35% of new hires who receive equity as part of their compensation are women. But that 35% received just 24% of all total equity issued. Women are underrepresented compared to men at all levels of startup employment, and the gap is particularly acute at higher levels of the compensation spectrum.

However, the equity gaps between men and women have narrowed over the past five years compared to the previous 19. Women who were hired between 2000 and 2018 made up 30% of all new employees and received 19% of all newly issued equity.

The percentage of new hires who are women either declined or stayed steady in most major job functions this year. Combined with the above data on the racial and ethnic background of new hires, this indicates that companies were more likely to hire white men in 2023 than in the past two years.

Women still make up the majority of new hires in HR and marketing functions, as they have in each of the past five years. The percentage of new hires who are women in the product segment has gone from 33% in 2019 to 36% this year, the largest increase of any job function.

Founders

Race & Ethnicity

While the founder data largely looks similar to last year, there were a few minor shifts in the racial and ethnic makeup of founders who started new companies on Carta in 2023.

Hispanic founders accounted for 5.6% of the founder population in 2023, the highest rate of the past six years. Meanwhile, the percentage of Black founders has fallen from 3.9% in 2021 to 2.7% in 2023.

Overall, 18% of the U.S. labor force is Hispanic and 13% is Black. With those shifts, we saw the percentage of white founders increase slightly from 2022, rising to 53.4%.

The majority of founders over the past two years are white men. Across all races and ethnicities, more than seven out of every eight founders over the past two years are men.

Gender

The percentage of founders who are women declined this year. For companies incorporated in 2023, 86.8% of founders were men, the highest rate in the past six years. The proportion of founders who are women (13.2%) is the lowest in the last six years.

This year, 76.2% of the earliest-stage money—pre-seed SAFEs and convertible notes—went to men-only teams. This disparity is wider than in the previous three years.

These disparities among the newest of companies speak to a continued pipeline problem in the startup ecosystem. The mid-stage and late-stage companies of tomorrow are being founded today, and they continue to be founded disproportionately by teams made up entirely of men.

Methodology

The Annual Equity Report includes data from more than 1.5 million U.S.-based employee stakeholders who have been issued equity via the Carta platform and over 67,000 founders of corporations who manage their company equity on Carta. 215,685 Carta users have voluntarily submitted their demographic profile information for the purposes of aggregated, anonymized equity compensation analysis.

Sample sizes
We cover analyses only where we have sufficient data. From the point of view of ensuring anonymity, each data point must be backed by at least 10 entities (people or companies, typically) in order to be included. However, in most cases we have and require much more data than that to reach statistical significance or produce a legible pattern or trend.

Throughout this report, when discussing gender we only included men and women. This was because this year, there was not enough data regarding non-binary individuals to reach statistical significance. Gender indicated in the data is based on how individuals identified themselves.

Valuing equity
The notional value of an employee’s first equity grant is calculated by multiplying the strike price by the total number of shares in the grant the employee was initially awarded in their role. It allows us to compare the relative amounts that companies have offered to employees by demographics, geography, or job role and level.

Credits

Editorial:
Kiley Roache, Kevin Dowd, Zoran Basich, Peter Walker
Data:
Lucy Wang, Irvin Ding, Winston Van
Communications:
Lauren O’Mahony, Tania Zaparaniuk, Jessica Capibaribe
Web:
Alex Danoff
Leadership:
Mita Mallick, Jane Alexander, Julia King