Why European Investors Are Leaving Money on the Table
The problem isn't as bad as in the U.S., but we still need to do better.
Thanks to #MeToo we learned a lot about gender inequality in the tech startup industry. Disappointing numbers were published showing that only 2.2 percent of all VC capital went to female founders and 20 percent to mixed teams.
But, can we say something specific about the gender funding gap in Europe? How do the statistics look like for European entrepreneurs? Northern Europe, more so than the U.S., is known for its social welfare system, for equality, for the inclusion of minorities. So, what about inclusion in the European entrepreneurship and funding industry? And what are we doing to increase the number of tech entrepreneurs?
What does the data tell us?
In 2017, roughly €16.35 billion was invested across 3,465 European VC deals. If we look at female founders, we see that a meager €1.84 billion was invested in 55 deals. Alarmingly, this stat implies that female-founded ventures receive just 11 percent of the VC capital in Europe. This lack of diversity in investing is a problem for the companies it fuels. Research consistently shows that diverse teams outperform on all dimensions and achieve up to 18 percent greater financial performance compared to their homogeneous counterparts. And also big institutions like the World Economic Forum are urging for stronger female leadership in innovative companies, emphasizing that companies with strong female leaders boost a return of equity that is 35 percent higher than companies without!
Moreover, if you have a company that serves diverse customers -- which is often the case -- it is shortsighted to not have that diversity reflected in your own business. Even more striking, the Boston Consultancy Group recently published a study showing that investors would have made an extra €72 million more over five years if they had backed both female founders and male founders equally.
Clearly, we are leaving money on the table by investing in homogeneous teams.
What can we do to increase those depressing numbers?
1. Increase the number of female VC decision-makers.
One of the key problems is the lack of female investors in Europe that connect to female entrepreneurs. Women count for 8 percent of the decision-makers in U.S. venture firms. The lack of concrete numbers of female VC partners in Europe would seem to indicate that the percentage is even lower here. And while there are several female founded firms in the U.S. (such as Female Founders Fund, BBG and Cowboy Ventures) serving as role models for both investors and entrepreneurs, tech investing is among the most male-dominated industries in Europe.
This homogeneous investor landscape is problematic, as scientific research shows us that people have the tendency to be attracted to people that are similar to themselves. This phenomenon is called "homophily" and leads male investors to predominantly invest in male entrepreneurs. Moreover, entrepreneurs that are "different" from the norm (as in "are not male") are often hesitant to make their way to the VC office.
2. Promote tech role models.
What can help to increase the number of female tech entrepreneurs, is actively promoting success stories of female entrepreneurs, as well as the presence of role models.
Just recently, Microsoft published a study confirming that European girls become familiar with science, technology, engineering and math (STEM) when they are around 11 years old. However, what's worrisome is that girls' interest begins to drop by the age of 15.
A fundamental finding of the study is that across both Europe and the U.S., role models are a key driver of arousing interested in tech among girls. Unfortunately, the Netherlands is one of the countries with an extremely low level of role model exposure. In fact, only 35 percent of Dutch girls claim to have an encouraging STEM role model.
A role model doesn't have to be a real person. It can also be a fictional character. Dutch tech serial entrepreneur and investor Janneke Niessen recently published Project Prep, in which a 13-year old girl discovers the fun side of tech, learning how to set up her own project and how to code. To make the story more appealing for girls, elements of friendship, love and fashion are integrated throughout the story
3. Promote tech education for everyone.
The root cause of having few women in tech starts at schools. We need to get more female engineers in schools and make sure they are considering learning digital skills. The solution is thus to promote easy and accessible tech education to girls. A great example is set by Codam, the Amsterdam based coding school founded by entrepreneur and co-founder of TomTom, Corinne Vigreux. Codam offers a 3.5-year coding education, for free, and doesn't have any entry requirements. "As a tech entrepreneur, I am acutely aware of the shortage of good software engineers and digital visionaries. ... Training local youth for local jobs, Codam will make it easier for people to kickstart a career in tech and take part in the economic growth the region is currently enjoying," says Vigreux. Initiatives like these are of enormous importance as they signal that tech is for everyone, not just for the elite.