Gender diversity in European private equity or “the fish stinks from the head”

There is still much room to improve gender diversity in the private equity space. Increasingly, industry leaders are wondering what initiatives they can adopt to enact positive change. Hear from Dr. Gesa Miczaika, Co-founder at Auxxo Female Catalyst Fund and upcoming speaker at SuperReturn International 2022 on the untapped potential of female founders, how to cultivate a diverse pool of talent to create more opportunities for women, and why VCs should be great risk takers and think outside the box when hiring new talent.

An inconvenient truth

The inconvenient truth about gender diversity in Europe: Only just over 1% (!) of total capital goes to female founders. This is not surprising given that only 12% of General Partners and Managing Directors of European VC funds are women, and the AuM are typically far lower where women are GPs or MDs. Also, diversity and inclusion don’t seem to be a big factor for Limited Partners. The quote that seemed the most obvious, but at the same time also struck me the most in Atomico’s State of the European Tech 2021 report was “Founders are less likely to score VCs highly for diversity.” Yes, I hear you. We have a German saying which fits the picture and translates into “the fish stinks from the head” meaning that the cause of a problem lies with individuals that are at the top of the hierarchy of power.

The untapped potential of female founders

When my (female) partners and I started angel investing together in 2018, we weren’t aware of these numbers. Then we found a study in the Harvard Business Review explaining why male founders on average received 5x more capital than female founders at a pitch event. One of the main reasons for this was the type of questions being posed: Men were asked to show the potentials of their businesses and women were asked to explain how they could de-risk. It is very human to have a cognitive bias. This of course also applies to investors, who accordingly prefer to invest in topics and people that they know and are very similar to them.

There seems to be not too much going for female founders. And this just doesn't make sense to me. Female founders are a huge untapped potential. The economy as a whole could benefit from a bigger share of capital going into female-founded businesses. See amongst others “The Trillion-Dollar Blind Spot” by Morgan Stanley. Data has shown that female founders and female fund managers generate attractive returns. The Female Founders Monitor by the German Startups Association delivers striking evidence that women are more likely to start businesses in areas with environmental or societal benefits, such as the health sector. If we strengthen gender diversity in the startup ecosystem, we will be able to draw from an increased pool of talent and innovation drive. And Private Equity is a great place to start, as the PE-backed companies tend to be far nimbler than the rest of the economy.

“the fish stinks from the head”

So, what do I think should be done? A great start would be to look at the “head of the fish”: Hire female Partners and General Partners and therefore make decision-making in Private Equity less biased. And remember, women have systematically been held back in the past centuries, so you won’t find them if you use your “typical” hiring criteria such as the amount of successful investments, exits or founding journeys. Why not look outside of the investment scene? Especially VCs should be great risk takers and able to think outside the box. I encourage them to act alike when hiring too! Even though a lot of VCs are highly sensitive with regards to gender diversity – and I am extraordinarily happy about the rising awareness in this crucial topic – they don’t have established mechanisms to avoid gender bias in the investment process.

Part of the “fish head” are also the Limited Partners. They need to do their due diligence. Next, they should step up and demand diversity in the firms they invest into. If they have a very large portfolio, also invest into (female) emerging fund managers with potentially smaller funds. Make this a priority and detain from investing if there is no gender diversity. There is an abundance of funds out there for you to pick from.

The European states are also major Limited Partners in several funds. I encourage them to make sure that all the state-owned or partly state-owned funds have women as decision-makers (especially on the General Partner-level). And they could also set a goal for the share of capital going towards female fund managers. I know many, many great female investors – also many who are currently raising their funds. If you need some deal flow, contact me. I am happy to help!

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Under the spotlight: Dr. Gesa Miczaikai

Dr. Gesa Miczaika is one of the founders and general partners of the Auxxo Female Catalyst Fund, a venture capital firm co-investing into startups with at least one female founder in Europe. She is the Deputy President of the German Startups Association and a member of the "Young Digital Economy" Advisory Board to the Minister of Economic Affairs and Energy in Germany, both in honorary capacity. Besides that, Gesa founded the Evangelistas, a network of female business angels with more than 170 members in Germany, together with Bettine Schmitz and Fabiola Hochkirchen.

To hear more insights from Dr. Gesa Miczaika and other industry leaders, join us at SuperReturn International 2022 >>