It’s about damn time for Venture Capital to act on gender equality. Here’s what millennial investors are doing
This is a revised version of a talk that I gave at Wave Venture’s LP event on why investing in female founders is not only the right thing to do but the smart thing to do.
I’ll begin by briefly sharing my story on how I got to be an Investment Manager at a student-run VC fund and why I am personally so driven by this topic. This will lead to me introducing some research on the benefits of investing in female founders and the fact that diverse investment teams improve fund performance. Additionally, I will show our current portfolio status and talk about what we are doing to increase the portion of venture capital going to female founders.
I’m originally from Finland but moved to Stockholm about four years ago. At the time the Swedish startup ecosystem was starting to get a lot of international attention with the likes of Spotify, Klarna, iZettle and so on. Feeling the thrill, I really wanted to be part of it and started working for a startup. Naturally, I began to learn about this thing called Venture Capital. As I was reading about the wonderful world of VC, my excitement came crashing down when I saw the statistics about women in the industry. At the time at Swedish private equity and venture capital firms, there were more partners who happened to be named Johan or Henrik than there were women (11% and 3% respectively). And, the bad news did not end there. Of all venture capital allocated in Sweden, less than 1% was going to female founders, even though 32% of companies founded the same year were launched by women. I decided that I needed to do something about it.
So, I wrote my bachelor thesis about this topic and that was actually how I came in contact with Wave. Since joining in October 2019, the topic of gender equality and promoting female entrepreneurship has been something that I’ve actively worked with.
A couple of weeks ago I tweeted out some stats about the gender distribution of the founding teams that I have met during my time with Wave. I received an overflow of DMs and comments from people asking how I had achieved these numbers. Not only does this highlight the huge interest in this topic, but also the importance of doing something about it.
Why is this important?
Well, female entrepreneurs face a number of barriers when raising capital. For example, when pitching female and male entrepreneurs get asked different kinds of questions, preventive and promotive respectively. And this is just one example. The consequence of these biases is the devastating numbers I mentioned earlier. We all have biases, whether we would like to admit it or not. Luckily biases are not permanent.
Let’s take a look at some numbers. A recent BCG research showed that if women and men globally participated equally as entrepreneurs, global GDP could rise by 3% to 6%, boosting the global economy by $2.5 trillion to $5 trillion. That’s huge.
I also want to highlight some research on the benefits of investing in female entrepreneurs:
- First Round Capital showed that their portfolio companies with a female founder performed 63% better than their investments with all-male founding teams.
- BCG found that businesses founded or co-founded by women deliver higher revenues even when having raised less capital than their male counterparts.
- And on the other side of the table: diversity among VC teams significantly improves the financial performance of individual portfolio-companies as well as the overall fund returns.
Last year US Venture capital investment in all-female founding teams hit a whopping all-time high of $3.3 billion. Which by the way represented 2.8% of total VC investments.
Clearly, there is an alpha proposition here. We’ve seen the data; diverse teams outperform, and with such a small portion of venture capital going to these teams, this represents a clear opportunity to outperform the market.
Let’s take a quick look at the current status of Wave’s portfolio companies.
Of our 19 portfolio companies, 2 were all-female founded, 12 all-male and 5 were founded by a mixed team. At the moment 5 of these companies have a female CEO and 14 have males. Clearly, we too can do better.
What can we do to increase the percentage of Venture Capital allocated to female founders, you may ask? There is no definite answer, but here is what we are doing at Wave — I call it the three T’s approach.
1. Tracking. First of all, I was delighted by the positive response to my tweet from our whole team at Wave, which led to us starting to collectively track the gender distribution of all the founders that we meet. By tracking metrics at every step of the investment process we can highlight and reduce the potential for bias.
I would like to add to this point, from a personal perspective what I do to achieve the numbers I tweeted out. Even though most of the founders that I meet have reached out to me, a significant portion consists of teams that I actively seek out. These are especially minority founders that I am interested in.
2. Top Priority. Second, we have made diversity and inclusion a core priority. Wave has joined the Inklusiiv challenge and committed to advancing Diversity and Inclusion in tech. This is something that each one of us finds really important.
3. Team. Third — what I personally believe in the most — is the importance of having a diverse investment team. At Wave, I am incredibly proud to say that the gender distribution of our management team is 50/50 female and male.
What I am trying to say is that the pipeline looks how you want it to look, there just needs to be a clear plan behind it. Whom better than the people within the startup ecosystem to know that actions speak louder than words.
Marianne Österlund joined Wave Ventures as an Investment Manager in October 2019. She is based in Stockholm.