NORDIC STARTUP FUNDING
Through the Lens of Gender Diversity
NORDIC STARTUP FUNDING
Through the Lens of Gender Diversity
In the Nordics we are proud of our high level of equality.
Our unique welfare and educational systems create the optimal playground for new innovation to evolve and solve big problems. Some of them we have already proven, with the high number of unicorns per capita. There has never been greater entrepreneurship activity in the Nordics as of today.
But are we making the most out of the situation? The key ingredient in creating and building groundbreaking innovations is the people. Research has again and again proven that diversity, particularly gender diversity, is directly linked to innovation as well as financial performance. This goes for startups as well as big corporates. In order for these new innovations to come to work, evolve and grow – capital is needed.
As this report demonstrates, not everyone is given access to that capital: of the 2bn euro of venture capital invested in 2018 in the Nordics, 88% went to all all-male founder teams, 11% to mixed gender teams and 1% to all-female founder teams.
In this report we are going to dig deep into these numbers.
We are going to show you amounts of capital, number of investment rounds, in a snapshot and over time. We are looking at the average deal sizes and proportions in investment ranges - all through the lens of gender diversity. This gives us a better understanding of what is happening, when it is happening and tell us something about the trends. To complement the data – we have reached out to various investors and ecosystem players to get their insights and reflections. This has resulted in over 30 insights and reflections that complement the data analysis.
We have incorporated a section from Diversity VCs 2018 female founders report to further complement the findings as well as Atomico's 2018 State of European Tech Report to enrich our findings on diversity and inclusion in startups.
Future looks bright
When you start reading and exploring the data, the numbers may seem not so optimistic, the purpose is to raise awareness, to start having a conversation. For you as an investor or policy maker – what this data represents is a huge business opportunity. It will require a lot of work for some investors, others are already full speed ahead, targeting underrepresented founders because they (we) see an incredible investment opportunity. Investing in startups and funding tomorrow's change makers is about finding that unique high performing 1% of people, why not source from the untapped pool.
We are already seeing the wave of female led unicorns in the US and we believe this wave will hit the Nordics as well. It will require pioneers and investors taking new and unconventional paths, but it will come.
Thank you Dealroom, from the first outreach you were up for the challenge and you have been constantly advancing the data insights, making these data points unprecedented in a Nordic context. A warm thank you to our partners who have chosen to back this project with knowledge, resources and support.
Thanks to Lego Ventures who want to increase creativity through diversity. Thanks to the financial institutions and national investment funds Danske Bank, DNB, Almi Invest and Vaekstfonden for backing this report. You all want to see a change in the flow of capital both from a societal impact perspective to the business opportunity side.
Thank you Diversity VC and Norwegian Venture Capital Association who has a profound interest in changing the status quo and who has been supporting the formation for this report from the very beginning.
Thank you Backstage Capital, Jane VC and Nordic Web – who are all changing the face of Venture Capital for supporting and being generous with your expertise and network.
Thank you to all our reflection givers. diversity and funding discussions can feel uncomfortable, taken out of context, misinterpreted. Talking about unconscious bias and our own structures standing in the way of positive change can be difficult, particularly when moving into the heart of the issues. Thank you for putting yourself out there bravely and sharing your thoughts with us in this report.
This report is an important step toward creating transparency. What gets measured, gets “funded”.
Enjoy the exploration!
"As a child of Indian Immigrants, and grandchild of Sindhi refugees I was always acutely aware of my 'otherness' at a very young age. Born in New York City, I am now an American expat living in Denmark, a privilege my family afforded me.
Intersectionality and social inhertiance play a large role in why many people of color, females, all those who have been marginalised by society by assigning these unwanted labels to their identity, don't even try their hand as founders, at entrepreneurship. They start far behind the starting line of that race. The flip side of the coin is that adverse conditions force you to find resources, strength and creativity inside yourself you never knew existed or even possible. I believe this is one of the many reasons diverse teams and founders do well when they finally receive the funding they need, they had to work very hard for it, so they understand it's value.
I like to think of it as the David and Goliath phenomena Malcolm Gladwell speaks about.
As founder, I started later in my life because of the number of social barriers I had to break through as a woman and now I do the same as investor. This is the case for many 'founders to be' from ethnically diverse backgrounds, they lack the social capital needed to open necessary doors to even get started. The odds are stacked against them, and we need to recognize and be aware of that within the start-up ecosystem.
As investors, we not only have a responsibility to empower their potential, but as UV demonstrates in this report, it's just good business."
Founder of Bloom VR Therapy,
Last year, 88% of Nordic VC capital went to founding teams with no women. Data shows that the vast majority of VC investments are made into all-male teams. In 2018, all female teams constituted just 1.4% of deals and mixed gender teams made up only 11%.
For every 1 euro of VC investment in the Nordics, all-female founders get less than 2 cents. All-male founding teams get 88 cents while mixed teams get 11 cents, and of this, all-female only teams get 1.4 cent.
The amounts of capital backing mixed teams are raising. Over the last 5 years, deals with all-female teams have been steady hovering around 1-3%. For mixed gender teams however we see a great rise the last two years from 7%-recording 18% if the projections for 2019 holds.
Proportion of deals going to female founders declines from seed to early stage VC, then something happens! The number of deals going to female founders drops from 18% at the seed stage to 8%in the early VC stage, 5-10 million Euro. But after Early stage towards later stage the proportion of women led companies increases drastically from 8% to 17%.
Female founders uses more creative sources of funding.
All female founders raises proportionally 4x more from crowdfunding than any other team compositions.
Family offices funds proportionally all male teams 6x more than mixed and all female teams across the Nordics.
On average, the Nordics have funded more founding teams with at least one female founder than most European countries. The Nordic Average 14%. Might be due to more gender equality in the Nordics compared to the rest of Europe.
That said, the Nordics lag behind the US on the amount of capital that is invested in female founding teams. In 2017, female founders in America received just 2% of venture capital dollars. Despite this funding gap, a 2018 study by Boston Consulting Group found that women-founded startups produce twice the revenue.
Why don't Nordics VCs invest more in teams with female founders? To answer the question, one must look at three parts of the investment funnel:
The way forward
1. Invest in more diverse founding teams given the compelling performance data. It's not just about democratizing access to funding but it's just good business.
2. Empower women to apply their intellectual capital within the startup space. Important with role models within the startup space that are relatable as well as access communities of female investors that they might not otherwise have access to in their personal network.
3. Create transparency around the performance and role of companies founded by diverse teams. Gather more data sets on diverse teams to create transparency and dispel myths / stereotypes on diverse persons roles and performance in startups.
This report looks at the representation of gender diversity within the founding teams that receive VC investment. To get the clearest answer, we have studied pre-existing public deal data from Dealroom.co database and framed it within the wider European context using both Atomico's report on the '2018 The State of European Tech' as well as DiversityVC's 'Female Founders Report'. In addition we have stitched in findings from Jane VC’s Early Stage Founder Survey as well as 2018 study by BCG reviewing 5 years of investment and revenue data on female founders.
In 2018, 2.3 bn euro was invested into Nordic Startups. VC is an influential industry and venture capital is a crucial enabler for developing and growing great technology companies that positively can impact society. They are viewed as the leading edge, and as such it matters who is part of the industry.
6:2 - Unconventional Ventures and Dealroom have shown that far less capital per round in Female only teams as compared to other teams. Mixed teams land 9.4% of deals but raise 10.5% of the capital All female founding teams land 6% of deals but only get 2% of the capital.
Smaller check, shorter runway, constantly fundraising.
The female founder penalty. All female teams get smaller average checks, 80% of the all male and mixed in the seed round. In later rounds these differences increase to 57% of all male average deals and 69% of the average mixed team size. Teams with at least one female founder are raising more often than all males teams. What this means is that these teams know how to run twice as fast while constant fundraising.
There aren't enough female founders. That may be true for a number of reasons, but it doesn't explain away the lack of capital for the ones who do found companies. Female founders get 1/3 pr. deal on average in contrast to all male teams who get proportionally 1/1.
Female founders don't play in opportunity industries.
If that were true, they are still playing in industries that produce twice the revenue. For example Femtech is on the rise to $50 Billion by 2025.
The data used to form this report is compiled form Delaroom.co's own database. Dealroom is the most comprehensive database covering funding data in Europe.
The data in Dealroom's database consists of:
Dealroom is used by professional investors, corporates and local governments. Dealroom has tracked almost 6,000 deals in 2018 for Europe, triple the sample size of other similar databases (70%+). Dealroom is utilized by NYTimes, Bloomberg, Reuters, The Economist, Forbes, BBC, TechCrunch, BusinessInsider, European Commision, Google and more.
About the data sample that is used to conduct this report:
"The Nordic ecosystem is home to some 14,000 startups spread across 5 countries, all ranking among the top 10 European countries by GDP per capita. This makes the diversity in the system important not only for the countries themselves, but also for the rest of Europe. The data around diversity becomes crucial for understanding both the current state and the drive for future actions."
Research Analyst at DealRoom
Individually, the contributions that Denmark, Norway, Sweden, Finland and Iceland have made to the Internet and technology are extremely impressive.
However, combined together as a region, their achievements are nothing short of mind-blowing, and made even more notable when you consider that even with five countries, the total population only stands at 27 million. The Nordics is the birthplace of C++, Ruby on Rails, Linux, the foundations of Web 2.0. Not only that, but the region is also the origin of billion dollar companies such as Spotify, Supercell, Skype, King, Zendesk, Rovio, iZettle, Mojang and Just-Eat.
In fact, outside of Silicon Valley, there are very few regions globally who consistently return VC investment quite like the Nordics does. And that's before we've even mentioned the likes of Unity, Klarna, Truecaller, Tradeshift and Trustpilot, companies above or around a billion dollar valuation who look set to exit in the next couple of years.
The consequences of this is that even with a history as rich in success stories as the Nordics have, the best days are still to come. The entrepreneurs, early employees and investors who've experienced success before are now beginning to reinvest their time, money and resource into the next generation of Nordic startup success stories.
Thriving startup ecosystems now exist in all Nordic countries and investment continues to flow into the region, as Nordic entrepreneurs continue to build the future.
- NEIL S. MURRAY
Founding Partner of The Nordic Web Ventures
"There are market based evidence that diverse teams improves performance and reduces risk. So we are encouraging founders and investors to be aware of the existing gender bias in the startup ecosystem and to put it on the agenda in the companies they run or are investing in, simply because it is good business.
This analysis continues to document a diversity problem in the startup ecosystem that we are aware of. It’s a problem within the investment space, but also within the salary-domain.
Spring this year we launched a “Nordic startup salary report” and one of the clear conclusions were that women are getting less salary than men when working in a startup – across company size, positions and experience"
Head of Wealth Management at Danske Bank