Venture capital study

European VC firms remain boys' clubs

The fact that women are underrepresented in the German and European startup ecosystems can also be attributed to the lack of diversity among investors, as demonstrated by a study. The industry does not expect quick progress in this regard.

European VC firms remain boys' clubs

According to a study by the "European Women in VC" initiative, European venture capital firms are still struggling with gender diversity. The percentage of female general partners in these firms was just 16% this year, up from 15% the previous year. The study surveyed 104 VC firms in Europe with a combined managed asset value of nearly €12 billion. In addition, data from the US provider Pitchbook were analyzed for 558 European VC firms that collectively manage €148 billion..

The report from the initiative, which comprises around 1,000 female leaders in the venture capital industry, highlights that the management of European VC firms is still predominantly male-dominated. Survey participants do not expect significant changes in this regard in the near future, with only 47% believing that the proportion of female general partners will increase over the next five years. In contrast, 43% expect it to remain the same, and 10% anticipate a decrease.

Economic failure

This lack of diversity among venture capital firms is problematic not only for the firms themselves but also for the startup ecosystem. The study shows that increased diversity in the upper management of VC funds is correlated with better financial performance. An increase of 10 percentage points in the proportion of women in upper management leads to a 1.3 percentage point increase in the average annual expected return.

Previous studies have also shown similar findings regarding the financial performance of startups. Female founders often face difficulties in securing the necessary growth capital due to the homogeneity of VC firms. Pitchbook's recent data revealed that only 1.4% of European venture capital investments in startups went to all-female teams this year, while mixed-gender teams received 16.6%. The rest went to all-male teams.

Gender bias

In the field of science, this disparity is partly attributed to what's known as "gender bias," which refers to an often unconscious, gender-related distortion of one's own perception, characterized by stereotypes and prejudices. This leads to investors frequently investing in founder teams that are similar to them, typically leaning toward male-dominated teams.

"The venture capital industry is, in a certain sense, a textbook example of economic failure," the study quotes Paul Donovan, Chief Economist at UBS Global Wealth Management. Limited available capital is not optimally allocated due to inadequate funding of startups with female founders. At the same time, there are indications that venture capitalists underestimate existing talent, even though the number of qualified VC managers is limited.

Investment committees also lack diversity

However, it's worth noting that in the investment committees, where investment decisions are made, female representation stands at a comparatively higher 30% in contrast to the general partners, marking an improvement from the previous year. Nonetheless, these committees still lack diversity in other aspects, with only 12% representing specific minority groups or having diverse ethnic backgrounds.

In Germany, the federal government has addressed this issue within its startup strategy. It aims to significantly boost female participation in investment committees of state-funded funds and investment firms. For instance, the High-Tech Gründerfonds plans to achieve gender-balanced representation in its three investment committees. Currently, female representation in the "Industrial Tech," "Life Science & Chemistry," and "Digital Tech" committees is at 32%, 20%, and 33%, respectively. There has been no change in these figures in the latter two categories since the beginning of the year. In the Industrial Tech sector, the proportion of women has actually decreased. At the start of the year, it stood at 40%.