New Report By European Women In VC Spotlights CEE Venture Capital Funding Through The Gender Lens

The finding that startups founded by women outperform male-founded ones is actually not a unique finding. This is backed up by quantitative evidence from BCG, which found that companies with a woman on the founding team delivered twice as much revenue per dollar invested than those run solely by men. The concept of investor homophily or homogeneity is real – it refers to the tendency for people to have (non-negative) ties with people who are similar to themselves in socially significant ways, and it specifically refers to an internal preference. And indeed – it exists at every level – between LPs and GPs, between VCs and founders – and also in an investment relationship between founders and angel investors. Investors understand best those who are most like them, same background, interest, and so on. 

“Let’s be honest, money globally is controlled by white men in their 40s-50s and they feel most comfortable investing in other white men, in founders that are most like them. That means they can not just discuss business, but they can build a trustful relationship through a common interest – starting with a proverbial football match and a beer,” shares Kinga Stanislawska, founder of the European Women in VC network and Managing General Partner and cofounder of Experior Venture Fund, one of the leading early and growth-stage venture capital funds in Poland, with the special focus on software and deep tech startups with global ambitions. 

“A lack of female investors is a key driver and compounds the funding gap. VC firms with women partners are more than twice as likely to invest in women-led enterprises and more than three times more likely to invest in enterprises with women CEOs and they drive better performance of the women-led startups,” adds Stanislawska. 

These findings have been well researched, documented, and shared in a newly published report – Funding In The CEE Region – done in collaboration between European Women in VC network, Unconventional Ventures, and Experior Venture Fund. The report sheds light on the fundraising and investment conditions in Central and Eastern Europe, pointing to an unquestionable difficulty faced by women entrepreneurs and women fund managers in accessing finance. A cross-cutting theme of the report is the lack of women representation – at the level of investors, venture capital funds, and companies – with women being underrepresented on all fronts. 

“The report was a process of gathering the most valuable data from various data sources with the involvement of three data partners: dealroom.co, Slush, and Invest Europe. We also conducted two questionnaires directed to the female founders and all VC in the CEE region. To collect the data we also worked together with a number of Venture Capital Associations in the region. We were also supported as part of the team by data analysts from Dealroom, by Terezia Jacova (who works in a Slovak VC called Neulogy), and by the EIB Innovation Finance Advisory team,” explains Thea Messel, one of the coauthors of the report and Founder and Managing Partner of Unconventional Ventures. Stanislawska and Messel met at one of Stanislawska’s podcast episodes, a place where she interviews female venture capital investors in Europe and shares their stories. This virtual meeting lighted a spark for the upcoming research and the report. 

The report considers startups with launch year no earlier than 2010, amount of total funding raised, HQs of a startup (they must be located in CEE region: Baltics – Estonia, Latvia, Lithuania; Central Europe – Czech Republic, Hungary, Poland, Slovakia; and Balkans – Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, Romania, Serbia, Slovenia, North Macedonia. The total number of companies analyzed as meeting the criteria was 897, which is a subset of over 7,117 CEE-based startups and scale-ups founded since 2010 tracked by dealroom.co.

In the CEE region, Estonia is the country leading the way for creating venture-backed startups founded by women. The Balkans leads when it comes to the percentage of rounds going to startups with at least one woman (co)founder. The research found that 1000-plus startups have been established in Estonia, of which 15% are founded by women according to Statistics Estonia and Startup Estonia white paper from 2020. As of 2010, 44 start-ups had been established in Estonia, of which five or 11.36% were founded or co-founded by a woman. 

“In Estonia, investing is definitely a completely uncovered area with only a few female investors and as of 2020, the decision-makers of investment funds are mainly men, with only one woman serving as a partner. In 2019, only 13.03% of funding rounds were closed by startups with female founders. This is in line with the overall proportion of female founders among startup founders in Estonia. However, there is a twofold difference in the average size of an investment transaction concluded with female and male founders – approximately $250,000 and $500,000, respectively,” explains Anna Wnuk – Blazejczyk, Investor Relations Manager at Experior Venture Fund and coauthor of the report. 

As Messel explains, Unconventional Ventures has done lots of research focusing specifically on the Nordic region in the past, showed that there has been a lot of focus on female founders for the last five years, and many have prioritized their efforts in the ecosystem towards female founders. However, very few of these activities have actually translated into more investments going to female founders. “Even those who receive investment are only getting one-third of the capital at early stages compared to male founders, and at later stages as little as 15% of the capital on average per investment round. This tells us that the focus is still on talking the talk,  but not walking the walk, meaning we emphasize that there needs to be more done but still not investing as an end result.”

Nora Bavey, General Partner at Unconventional Ventures and coauthor of the report, highlights that one of the biggest red flags they came across when doing research was finding that LPs do not ask for diversity strategies within the funds they are to invest in or the portfolios of the fund – 92% of the CEE GPs surveyed say they “never or hardly” get asked about their diversity and inclusion strategy in the fund or portfolio. Interestingly, female LPs hardly feature in dialogue with VC funds when raising funds. According to the report, only 2% of funds meet female LPs as frequently as male LPs. “It is vital that, as an industry, we all aim for the same endpoint. The industry must acknowledge the social and economic benefits of diversity at all levels of business, entrepreneurship, and finance. There is a very long way to go, but we hope that with transparency, open conversation, and radical action, we can reach it together. These findings give us the starting point and the first step on the journey,” says Bavey. 

Some of the other highlights from the report:

• In 2020, women-founded startups raised just 1% of investment in Central and Eastern Europe. 5% of the funding raised went to mixed-gender founding teams, while all-men teams raised 94%. 
• Since 2016, female-founded startups have received 2.2% out of the total of $3 billion invested into CEE Startups. 
• Investors sign bigger cheques for men. Average round sizes at Seed and Series A are smaller for all-women teams in CEE than for mixed and all-men teams. 
• Women-founded and women-led startups generate more revenue per $ invested and outperform in capital productivity by 96%.
• Funders and decision-makers are predominantly men. Of funds active in CEE, 85% of the investment roles are held by men, rising to 93% at the Partner level.
• VC funds with all-men General Partner (GP) teams have 5X the firepower (AUM – asset under management) to invest in companies compared to all women GPs of venture funds.
• When female GPS were analyzed, it was discovered that the vast majority of the funds they work at invest in positive impact projects, they invest responsibly. The key areas of focus for those VCs are sustainability, clean-tech, deep-tech, and science-related sectors such as medical and biotech, projects tackling the societal challenges, etc. 

This report is, hopefully, the first step towards a long-lasting change that can only be achieved by tackling women underrepresentation across the various levels of the value chain, starting with education and encouraging young women to study STEM degrees, creating a pipeline of female talent for business innovation as well as instilling in women the confidence to become investors, starting as angel investors and later setting up their own funds. As it’s clearly shown in the report in so many places, It is vital that everyone in the industry aims for the same endpoint. The industry must acknowledge the social and economic benefits of diversity at all levels of business, entrepreneurship, and finance, which can only be achieved by transparency, open conversation, and radical action.