Signals from the Future #09 – Inclusive Funding

Studies show that only a tiny fraction of worldwide venture capital (VC) goes to female founders. The fact that the vast majority of venture capital decision makers are male is likely to play a significant in this. There is a bias towards investing in people who are like ourselves: think similar educational background, gender, ethnicity or even skin colour. If 96% of VC decision makers are males, so you can see how women entrepreneurs have difficulty. But other under-represented groups also have a hard time finding investors.

The three experts guest on the Waterkant’s Signals from the Future, Maria Amelie, Kirsten Mikkelsen and Heidrun Twesten all agreed on one thing: this has to change. All three have been active in the startup scene for several years, supporting, coaching and promoting young business talents, and joined us as guests for our March 2021 show to discuss the topic of inclusive funding with our host Tim Logan. This show, which aired on Thursday 4th March, focused on the topic of inclusive funding: what that means, what problems currently prevail, and what signals can we already see of positive change?

Our guests

Heidrun Twesten has been working in the startup scene since 1996. She is also an entrepreneur, consultant, facilitator, coach, mentor, business angel and speaker and focuses especially on supporting female founders. Kirsten Mikkelsen has also been active in the startup scene for several years and driving force behind WestartupSH (increases visibility of future companies). Her ambition is to "promote the entrepreneurial mindset with deep interests in women's empowerment." Our third guest, Maria Amelie, is also an expert in this field. She is co-founder of startup migrants and her aspiration is to bring startup preschool to Europe and discover business talent in Europe.

So, what does inclusive funding mean?

Heidrun refers to the significant female minority among both startups and venture capitalists (VCs). In Germany there are only 16% female startup founders. Shocking to know that only 2.3% of worldwide venture capital goes to female teams. Many products, such as those related to female menopause or menstruation, target half of humanity, but may be far from the minds of male venture capitalists, so they don't consider investing. Moreover is the problem of similarity between investor and founder. Male investors with excellent resumes invest in other men with similarly successful vitas.  Underrepresented groups have fewer opportunities, and as such Heidrun argues that more diversity in investors and structures is needed to support underrepresented teams and to make the whole ecosystem¬¬ more inclusive.

Kirsten echoes the need for breaking the old structures. The industry is male based, and women often don't want to play by the those rules, so they choose not to start a business in the first place. The 4% of investors who are female (yep, just 4%)  also show signs of adopting male traits in their investing behaviour simply because that's what they've been shown. Maria adds that women are often accused of not being “entrepreneurial” enough. But a positive feedback loop is possible: The more normal it becomes for women to run things their own way, the more women would join. The same is true for other underrepresented groups. As Kirsten says, inclusive funding means that everyone is allowed to be their authentic selves without fear of negative reactions and subsequent failure.

Not every startup has to become a unicorn

Society needs to get away from the idea that being a startup means becoming a Unicorn ( a startup with a market valuation of over a billion dollars). As Heidrun points out, creating a unicorn is as likely as winning the lottery, and it’s really an outdated view of success. Founding a startup is not always about becoming the biggest and best and making the most money. She underlines the fact that successful companies in Germany are the small and medium-sized ones – and we have to get away from the Silicon Valley dream. You can be successful with smaller businesses while taking less risk. Smaller companies and thus smaller investments do not need venture capitalists, so young business talents should be presented with other funding opportunities. Here in Schleswig-Holstein (and  basically across Germany) there are people who have the money to become investors od smaller amounts, but they they lack the contact points and infrastructure to make these types of investment. But this is starting to change. Heidrun refers to the great example of the leapfunder ( platform, through which startups network with business angels, and unconventional ventures ( whos purpose is ‘unlocking the potential of under-represented founders in the Nordics and beyond’

In addition, Maria believes that minorities often lack the necessary contacts to encourage them to commercialize their idea, and tell them who to talk to next. There are many talented people with great ideas and, on the other side, many women who actually have the money to invest but the idea is not even on their radar.

What has to change?

Most people have a lack of knowledge about startup funding, both as investors and recipient of capital. If these two side can be connected and educated about the opportunities it could really change the shape of the investor landscape. Most of us are afraid of taking big risks and failure. But high risk does not necessarily have to go hand in hand with founding a company or investing, and while we don’t want to plan for failure, it is a fact of life and there to be learned from. Just start investing with less money in less risky ventures. Let’s celebrate the fact that changes are happening, and  ever more (male) investors are investing in startups from women and other minorities. But we still urgently need to create this connection between investors and underrepresented startups. We need to show wealthy women the opportunities they have to invest in young talent – where surprisingly small amounts. Can be quite sufficient. And we need to create a way together to connect the two sides and build a more diverse and inclusive base.

If you want to get to know more about why many women aren't actually keen to take a seat in conventional VC firms, which role rich ladies might play in diversifying the investment landscape and what Maria focuses on with Startup Migrants you should defenitely tune in and re-watch this Signals from the Future episode.

In our show notes you find further information on our guests and links to the initiatives discussed.

Signals from the future is a monthly format discussing futures topics.
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