European venture capital (VC) firms have begun to talk the talk on funding female-led companies, but the promises have made more of a splash than the delivery so far.

“While VC funds are paying more attention to the gender investment gap, we see less of them who walk the walk,” said Triin Linamagi, founding partner at Sie Ventures. Limited partners (LPs) have a lot of work to do driving more investment to teams from diverse backgrounds, she added.

The headline numbers are shocking. Women-led start-ups in Europe received 2.4% of all capital deployed by VCs in 2020, per TechCrunch reporting, but even that was a blip, with the numbers staying stubbornly below 2% in 2017 to 2019 and again in 2021.

The societal impact of the gender investment gap is potentially huge. Not only do female founders miss out, so do investors and consumers as innovations not typically developed by men find it harder to come to market.

However, some female investors are determined to tackle this issue, with VC funds targeting female-founded and gender diverse-led companies sprouting in Europe. These include Paris, France-based SistaFund, which is targeting an EUR 100m fund and had its first close at EUR 30m last October; and Vienna, Austria-based Fund F, which targets EUR 20m and had its first close at EUR 12m in October last year, per press reports.

Across the Channel, Pink Salt Ventures and Sie Ventures are aiming to do the same with both in a process of raising their first funds, which will target businesses founded by women.

With around 13% of UK companies solely female-founded but typically receiving around 1-2% of total funding going to British companies, “there is a big opportunity in funding female founders, and there is a huge opportunity to build value,” said Samira Ann Qassim, co-founder and partner at Pink Salt Ventures.

Linamagi agreed, saying that women tend to build companies that address huge global challenges such as healthcare, climate and the future of finance and education. “When we look at fintech in particular - we have invested in companies focusing on underserved communities and markets where there’s been a lack of innovation to date,” she said.

While unconscious biases are a well-researched and much-discussed barrier for women to access funding in male-dominated investor communities, lack of networks and understanding of fundraising processes are also significant obstacles.

Heini Salonen, CEO and co-founder of kicker.cloud said, “a lot of people raising early-stage funding don't have a background in doing deals and lack visibility on how the process works, and this is especially the case for those who don't have existing investor community networks.”

Salonen and her co-founder have a background in the investment world, which gave them an idea of how things work, making it easier to talk to angel investors and VCs, she said. kicker.cloud is a Finland-based start-up that has developed a platform streamlining processes and improving data usage in deal making, and which earlier this year raised a EUR 700,000 pre-seed round.

Female founders are less likely to have enough wealth to inject their personal capital into their ventures at the earliest stages. They are also often penalised in pitches by investors who tend to ask female founders more risk-related questions than male founders.

“Women are given a harder time to pitch their best-case scenario than men, but this is a two-sided coin. If you are well-prepared, you can flip it around," Qassim said, adding that women also tend to pitch more conservatively than men.

Although the overall statistics around capital going to female founders are not showing much change over recent years, Linamagi believes things are slowly getting better. “We are seeing more women building companies targeting huge markets in a range of sectors, including enterprise SaaS, fintech, biotech, deeptech and tech-driven businesses. We are still seeing many consumer companies as well but there is more diversification and defensibility,” she said.

Real change always requires as broad an approach as possible to create common interest and there needs to be a conscious decision to support female-led teams. To change the dynamics, you need dedicated capital, dedicated teams at the early stage, Qassim said.

“There are some large institutions such as some pension funds that are allocating funds to invest in female-founded companies, and while I am very positive about the future, I think the change will take decades. It will take funds like ours to have a track-record to start seeing the change,” Qassim said.

Fundraising to invest in women’s businesses

Having begun its fundraising process in March, Sie Ventures is aiming for the first close later this year, Linamagi said declining to share targeted size.

Sie Ventures is not yet investing from the fund but is investing from its syndicate vehicle with angel investors and family offices, Linamagi said.

The vehicle typically invests around GBP 100,000-GBP 200,000 tickets in pre-seed and seed rounds averaging in the range of GBP 1m-GBP 5m, focusing on UK and European companies where at least one co-founder is a woman. The team has made seven investments to-date, across fintech, SaaS, healthcare and sustainability.

Linamagi started to look into the gender funding gap around 2019 while she was already working as a VC investor and noticed that there was a “huge gender bias in the investment process”.

Linamagi and her co-founder began angel investing in female-led companies and saw a vast opportunity in areas that many other venture funds and investors were ignoring or had limited access to and knowledge about.

Sie Ventures launched in January 2021 with catalyst programmes that run yearly for earlier-stage, female-led businesses, focusing on demystifying the fundraising process and reducing barriers to access investor networks. To date, the programme has already supported more than 35 companies through its cohorts to raise over GBP 60M in capital, Linamagi said.

Pink Salt Ventures, started by Qassim in 2019, is also in the process of raising its first fund, which is planned to close by the end of this year, she said declining to share targeted size. The fund has already made one investment, with six other investments made through the proof-of-concept vehicle, she added.

Both Qassim and Linamagi agreed raising a new VC fund is challenging.

“Anyone raising a first-time fund will tell you it is challenging, and it is very inefficient,” Qasim said. “Given our fund size, we can’t go after large institutional investors, so it is mainly private wealth [we look for], such as high-net individuals and family offices. It is an endurance game. But if you are doing something differentiated you will find those people.”

At the same time, the current market volatility sees many funds of funds slowing down their investment decisions due to extended fundraising cycles and family offices are sitting tight. “It is a challenging time to raise capital and the market has changed but the appetite to invest in outstanding emerging managers is there,” Linamagi said.