Breaking the Gentlemen’s Club and Funding a (diverse) Future
This is the first article in a series of deep-dives into our perspective on diversity in Danish tech startups, our responsibility as a VC, and the role we play in shaping the future. We are well-aware that DE&I spans far beyond just gender equality. These are our first steps on a long road lying ahead of the Danish tech ecosystem, as we pour our resources into making lasting, positive change. This will be our starting point. We are deeply dedicated to improving on all DE&I verticals, and you are hereby invited to come with us on this journey.
Take a look at the group of people around you. Your mentor, co-founder, investor, or your colleagues joining in on the weekly meeting. Odds are, they are pretty similar to yourself. As humans, we feel most comfortable when we interact with people that look like us, speak like us, and have similar interests. Small talk is easier with things in common, right?
While this homogeneity might not be an issue in our private lives (although slightly boring in the long run), it becomes one when we’re talking business. We already know that diverse teams perform better. It allows for improved decision-making, more accurate information processing, and increased innovation. In the VC world, diversity translates into not only better investments, but also better market coverage and a higher chance of scoring unicorns. It’s a shame the real world doesn’t reflect it.
Over the past decade, diversity, equity, and inclusion has drawn increasing attention in the venture ecosystem. And for good reason: only 3% of VC funding in Denmark goes to female or mixed founder teams (Bootstrapping, 2020). A recent article by Forbes (2022) states that despite the fact that founder-teams with women are less likely to receive follow-up funding, they are more likely to exit and have a higher IRR (122% compared to 48%). Generally speaking, women under-promise and over-deliver. While this might not be news for many of us, navigating what we can do to combat the issue easily gets overwhelming, as DE&I issues are entangled in societal gender norms stemming all the way back to the kindergarten playground and how we raise our kids (we’ll get back to that).
As we went over our numbers, processes, and internal biases to uncover how PSV can do our part in diversifying the Danish (we’ll start here) tech ecosystem, we found ourselves with the same feeling of being overwhelmed and a little shameful (trust us, taking an unconscious bias test usually does that to you), and with a need to share what we learned.
We have over the past couple of years tried to take responsibility. Not only have our own PSV Academy hosted ‘Fundraising for Female Founders’, we have also been a part of Tech Nordic Advocates, Time to Raise, and the recently published Diversity Commitment. Just recently, Christel Piron, CEO of PSV and Co-founder & GP of PSV Tech, was a jury member in Dansk Erhvervs ‘The 25 Female Entrepreneurs in 2021’, highlighting 25 female role models in the Danish startup ecosystem, where several of our own PSV Family founders were mentioned. We are certainly proud of what we have accomplished this far, but it is not nearly enough. Yes, doing something is always better than doing nothing, but spread-out, disconnected initiatives not anchored in the top-level business strategy are no longer adequate – and have never been.
While we are busy working on improving our DE&I strategy and a to-the-core action plan, we thought we should share some thoughts and insights we’ve gathered along the way, and what still leaves us in a head-pounding conundrum of how to do better. We’ll start close to heart: funding for diversity.
It’s not a pipeline problem
We’re not saying that there’s no problem to be found in the pipeline – there is, it’s huge, and it’s something we need to work persistently on improving. What we are saying is that the issue cannot be isolated to the lack of women in STEM educations or the perception that ‘no females dream of becoming tech founders’. The problem is two-folded; the lack of pipeline diversity, and the biased investment processes.
Let’s face it: it’s easy to point to the deal flow numbers, shrug our shoulders, and get comfortable concluding that the reason for the many male-only founding teams we see in VC is due to the lacking amount of female-and mixed founder teams in our top funnel. But we need to think differently. Several reports and articles, such as Kauffman Fellow’s (2020) ‘Deconstructing the pipeline myth’, Bootstrapping’s ‘Return on Diversity’ (2022), Deloitte’s VC Human Capital Survey (2021) (we can go on and on), point to the fact that there’s inconsistency throughout the investment funnel: there is a gap in deal flow to money invested in female or mixed founding teams compared to male. It reads like a giant neon sign pointing to biased investment processes. While there are a lot of underlying norms, unconscious biases, and unclear structures affecting Diversity & Inclusion, we can conclude one thing: we cannot blame the pipeline.
The numbers have ratted out investors and proved that we cannot rid ourselves of some fault as well. That’s what we’re talking about today but fret not: we’ll get back to the pipeline problem soon enough.
Stuck between a pitch and a hard place
We’re a relatively young organisation. That means we’ve had the knowledge necessary to be aware of our internal gender balance at PSV since the beginning. We’re proud to be among the most diverse Danish VCs when it comes to the gender balance of General Partners of our funds. But this title also comes with a responsibility to leverage the strength that comes with this amount of internal diversity.
The Reinforcement Cycle refers to the well-known law of behaviour we referenced in the beginning: we like people that look like us. In VC, it means that male GPs invest in male founder teams, and vice versa. In theory, a highly diverse partner group will ensure diverse investments. We’ve got the first part nailed down. So why is the second lacking? The answer to that spans way beyond our deal funnel, even beyond our ecosystem. But we’ll start with what we have absolute control of the internal processes deciding who we invest in.
You know the drill: a founder team enters the top of the funnel, we research them, have a chat, research some more, and then we arrive at what truly separates the winners from the not-winners: the pitch. In its nature, the pitch favours male founder teams, which might be partially explained by the incongruence between personality attributes ascribed to women and personality attributes ascribed to founders (risk-seeking, confident, persuasive – you know the drill: triple-triple-double-double mindset). As investors, we play a huge role in this. We need to re-think the process and rewire our perception of how a successful founder is perceived.
Rewiring our framework
If you’ve ever seen a pitch, you know that the pitch itself is much less nerve-wracking than what comes after. The questions from us investors aim to bring more information into the light – information that later might be key to deciding whether to invest or not. The importance of asking the right questions really cannot be understated, as they are probably the strongest tool in the investor toolbox.
Imagine what we felt like when we discovered that we hadn’t been asking some of the glaringly obvious questions in relation to how the founders secure diversity. You nailed it. It felt bad. We went back to basics on how we approach a pitch and discovered that something as simple as reminding ourselves and each other of thinking about diversity before we go in for a pitch, has the power to make us ask the questions we must.
What goes before all of the learning we’ve established (and the ones we’re still in the process of) is that we had to learn how we’ve been wired to approach investments from a non-diverse standpoint. An unconscious bias test and a lot of training later, we, as an organisation, know and understand more, but we’re also left with knowing just how much we have left to gain an understanding of.
So, here we are. In the very beginning of what we know for sure will be a long journey. And we are excited to bring you along the way. It is time for a pinky swear pact: We promise to dig deep, go beyond unconcrete efforts and share both victories and setbacks, if you promise to share your thoughts and feedback with us? Great.
Let’s go!
– Helle Uth & Christel Piron, Co-founders & General Partners of PSV Tech
