New Guide on the Way: Diversity is Good Business – But Denmark is Falling Behind!
Return on Diversity #1. How can we tackle the startup gender imbalance, unlock untapped potential and achieve a return on diversity?
This is the first article in a series about the gender imbalance in the Danish startup ecosystem, that Bootstrapping will publish as warmup for the launch of the guide Return on Diversity on November 19th. The guide is a collaboration between Bootstrapping, Female Founders of the Future and Nextwork sponsored by Danske Bank and ITB. It’s mission; to provide tools and guidelines for founders, investors and those who organise investments, to help fix the gender imbalance in the Danish startup ecosystem.
The more diversity, the better the financial performance – which means more in return for the entrepreneur; that’s a simple fact. But within the Nordic countries, Denmark is lagging behind. We have a huge challenge in the Danish ecosystem, and new tools are needed:
In Denmark, more and more people decide to become entrepreneurs. Unfortunately, women are still and heavily underrepresented. Furthermore, among those who decide to venture into entrepreneurship, female entrepreneurs are much less likely to receive investments and on average receive smaller investments than male entrepreneurs.
In 2019 95% of all VC-investments in Denmark were given to companies founded by only men.
This is not just a societal problem but also a missed potential for startups and investors alike, because we risk losing out on talent, innovation, job creation and economic growth. Moreover, an overwhelming majority of research indicates a positive correlation between diversity and performance and return on investment.
Klavs Hjort, SVP for Growth & Impact in Danske Bank is the main sponsor behind the guide. They see startups as a central piece of the Nordic economy going forward. And the diversity – or lack of – is a recurring theme, which the team and Klavs himself finds a very important topic:
“We have known about this issue for a while, and we have known that it represents an untapped potential – a lost return on diversity, so to speak – especially here in our Danish Startup ecosystem. In Danske Bank Growth & Impact, we think now is the time to act. That’s why we call it a guide and focus on presenting a way forward.”
95% of all VC investments go to male founders
According to the 2020 Global Gender Gap Report from the World Economic Forum, Denmark has fallen from 13th to 14th place on gender equality, whereas our Nordic neighbors Iceland, Norway, Finland and Sweden in the same report rank at 1st through 4th place. Denmark is falling behind, and when it comes to entrepreneurship, things are especially bad.
The gender imbalance in investments: In 2019 95% of all VC-investments in Denmark were given to companies founded by only men. 4% went to startups with mixed founder teams of both women and men. The last percent went to companies with an all female founder team. All numbers according to Unconventional Ventures report 2020.
A tilted Playing Field?
Unfortunately the problem is not only a lack of investments, but also fewer possibilities, many more hindrances and smaller investments. In fact, studies indicate that female founders:
- have to go through more investment rounds before receiving investment
- receive fewer “warm” introductions to potential investors
- and receive a smaller amount of capital, when acquiring investments
We asked Rolf Kjærgaard, CEO of Vækstfonden if this is an agenda, they will pursue and his answer was uplifting:
“Diversity and inclusion are important for Denmark because it ensures complementary knowledge is put into starting and scaling innovative business. The diverse teams have a higher return on investment, are more innovative, and practice better decision-making. That is what we need in Denmark.”
And Rolf, it seems, has done his homework, because…
Diversity creates bigger profit, for fewer investments
An international study by Boston Consulting Group has shown that startups with a female founder receive fewer and smaller investments than startups founded only by men. Despite this disparity, startups founded and co-founded by women actually performed better over time, generating 10% more in cumulative revenue over a five-year period: $730,000 compared with $662,000. In terms of how effectively companies turn a dollar of investment into a dollar of revenue, startups founded and co-founded by women are significantly better financial investments, the study concludes. For every dollar of funding, these startups generated 78 cents, while male-founded startups generated less than half that—just 31 cents.
Men and women do equally well, even though male founders are favored
There are at the moment no numbers from Denmark, but The Allison Rose Review on Entrepreneurship – a large study from the UK – indicates that up to 250 billion pounds would be added to the UK economy, if as many women as men started and grew companies. The same study also showed that female- and male-owned startups had an equal chance of doing well, and women are just as likely as men to be successful in maintaining a business.
A female co-founder is associated with better results
The american seed-venture fund First Round Capital, that e.g. have invested in Uber and other large tech companies, published a report in 2015 analysing 10 years of investments in nearly 300 companies. The analysis of their own portfolio indicated that startups with at least one female founder did on average 63% better than startups founded by only men. The performance multiples reflect the appreciation (or depreciation) between First Round Capital’s original investment and (1) the value at exit (for companies who have exited) or (2) the fair market value First Round Capital used in their audited December 31, 2014 financial statements.
More women at C-level, is good for business in multiple ways
When startups start to scale, there are many potential financial benefits to having a diverse team.
The McKinsey report ‘Delivering through Diversity’ from 2018 explains that companies that have more women at C-level, are 21% more likely to be profitable than their competitors. Furthermore, these companies are 27% more likely to create products and services that customers are loyal towards and willing to pay a premium for.
- We have a huge challenge in front us with Diversity and gender balance in the Danish Startup Ecosystem
- Diversity and gender balance are good for business. Also, it would seem, in the volatile startup world
- Building on this, investments in startups with gender balance and diverse teams looks like a good bet
Co-author of our guide and founder of Female Founders Of The Future, Liva Echwald-Tijsen, talk about the enormous potential that lies in changing the Danish Startup ecosystem for the better:
“This is a potential no one can afford to miss out on. The most uplifting thing about working on this guide is to see the huge potential and the willingness to change and action we have encountered among ecosystem stakeholders.”
“I truly and wholeheartedly believe that there is a massive potential that we are all missing out on. However, I also detect a great will to create change so that the numbers can looks significantly different in the future.”
Please note: What you have been reading now is just a short line up of all the points, views, and perspectives that our guide Return on Diversity deals with. Return on Diversity not only sums up the problems within the startup eco system; we propose and deliver the solutions. Follow this series. Together we will unlock the untapped potential in the Danish Startup Ecosystem.
Our articles about diversity will be free to read and in English – and our guide Return on Diversity is as well: Our hope is to reach out to not only Danish founders, investors and VCs about the lack of diversity within the ecosystem, but to all the Nordic countries, so the lack of diversity can be broadly discussed – and acted on. Also, one our main source of hard facts and figures on this topic is the Unconventional Venture Report 2020 by Thea Messel and Nora Bavey that encompass the Nordics.