The Impact of Gender Diversity on Startup Success
Synthesizing Insights From the Data
👋 Hi, I’m Andre and welcome to my weekly newsletter, Data-driven VC. Every Tuesday, I publish “Insights” to digest the most relevant startup research & reports, and every Thursday, I publish “Essays” that cover hands-on insights about data-driven innovation & AI in VC. Follow along to understand how startup investing becomes more data-driven, why it matters, and what it means for you.
Efficiency, effectiveness, and inclusiveness are our three guiding principles why investors need to become more data-driven. While we focused many episodes on the first two dimensions, we didn’t spend enough time on the latter. A bit more than a year ago, Prof Isabell Welpe and Nadja Born shared their research on the impact of gender inequality on startups in a guest post.
It’s important to note that gender is a prominent yet (only) one of many dimensions of diversity. Let’s not forget about factors such as religious beliefs, race, martial status, ethnicity, parental status, age, education, physical and mental ability, income, occupation, language, geographic location, and many more components. While we’d love to explore the impact on startups of as many dimensions of diversity as possible, the majority of the available “diversity in startups” research is focused on gender.
Extending on the incredibly insightful guest post from last year, we are going to examine the state of gender diversity more broadly today. This is a topic with many perspectives and extensive literature. Our aim is to provide a comprehensive overview of the current landscape, analyze the existing research on how gender diversity—or the lack thereof—impacts startups, and offer practical, research-based advice for entrepreneurs looking to enhance their teams' performance, their companies' success, and outcomes for their stakeholders.
We should consider how our societal and entrepreneurial structures can be optimized to maximize positive impacts, whether measured in technological progress, financial performance, or addressing major challenges like climate change, diseases, and economic inequality. And finally, beyond moral contemplation, if you believe the literature and the data, we can’t afford to leave half the population by the wayside for petty considerations.
Before we dive into the literature and the data, here are some quick definitions of terms that we are going to use throughout this episode. Just to make sure we’re on the same page:
Diverse team: A team of founders that includes at least one woman and at least one man. This is not to say that these teams fulfill all considerations around diversity.
All-female team: A team of founders (or solo founders) that includes only female founders.
All-male team: A team of founders (or solo founders) that includes only male founders.
Non-binary teams: While we recognise the importance of inclusivity, it's worth noting that this episode does not include data on non-binary individuals. This omission is due to the lack of comprehensive data and research on the topic in Europe. While still far from great, we found that the data is a little better in the US. This is partly rooted in legal challenges that can make it difficult to survey data on sexual orientation, and gender identity, in many European countries.
The Status Quo in Europe
A report by Sifted provides a good initial overview of the state of gender diversity in Europe by examining allocation of VC money into female-founded startups across regions.
As the consistent leader, UK and Ireland based startups received around 40% of total venture capital into female-founded teams across Europe. A more distant second place with about 26% and a consistent year-on-year improvement is France. The DACH region ranks third with a relatively consistent share of 16% of VC funding into female-founded teams. The last two places are shared by the Nordic Region and Southern Europe, both currently hovering around 8%.
According to a comprehensive dataset published by PitchBook as part of their “2023 European All In: Female Founders in the VC Ecosystem“ report, more than € 4bn investment went into diverse and female-only teams in the UK/I. This amount already represents 40% of total ecosystem investments into diverse teams.
This makes intuitive sense as the UK faces the largest investment volume in Europe (€21 bn in 2023 according to Dealroom). Ultimately, this means a “diverse investment rate” of 19%. The other regions comprise the remaining amount according to the visualization below:
To put things into context, we normalized these numbers with overall funding data from the same source (PitchBook [1, 2]) to reveal relative “over- or under-investment” into female-founded (in this case at least one female founder) teams.
Our methodology: