Follow the money: How more diversity in start-ups can succeed

More diversity? Follow the money. If you do it with brains and not in an ideological way, everyone will benefit in the end: female investors, founders and customers.
Min Read
June 2, 2021

Start-ups are still the domain of white men, and we hear often enough that too few women are founding them. However, one aspect that often goes unmentioned is that even the few start-ups founded by women are usually not in the same league as their male colleagues. According to the Female Founders Monitor 2020, only a meagre three percentage of start-ups founded by women employ more than ten people. And: women receive less venture capital - which makes it more difficult for them to rise in the start-up scene.

One of the main reasons for this picture is that funders are similarly positioned to the start-ups themselves when it comes to diversity. In Germany, for example, there are hardly any female investors who finance start-ups. And men invest mainly in start-ups that are founded or run by men. I am convinced that a fundamental change towards more diversity can only be achieved if these issues are structurally anchored in the institutions that promote and finance start-ups.

1 Diversity must become a top priority

For investors and funding programmes to change anything at all, the topic must be at the top of their own agenda by decree. Here, diversity must be anchored as a fixed value, and target and concrete measures for its implementation must be determined and regularly reviewed. In addition, a responsible person should be appointed on the board to ensure performance. Ultimately, it is the same as other current topics, such as sustainability: as long as the desired course is not anchored and exemplified within the company, nothing will change with partners, customers, or even the funded start-ups.

2 VC companies also need quotas

If you want to be more diverse, you can't avoid quotas - this applies to both small and large companies and venture capital providers and funding programmes. All-male juries before which start-ups have to pitch have long been considered a no-go. For example, if they have a high-profile presence in government funding programmes, they are a sure way to the next shitstorm. For this reason, care should be taken to ensure that boards, teams and juries are made up of diverse members according to a fixed quota. Not because of the shitstorm, but because diverse teams are more successful.

3. Link KPIs and policies to diversity

To successfully manage mismatches that arise from male investors supporting mostly male founders, diversity must play a role in internal objectives. For example, KPIs can be anchored that are linked to the scouting of diversely managed start-up teams. In addition, conditions should be placed on allocating investments and funding, at least in part. This can ensure that diversely positioned start-ups are promoted more strongly and that the factor becomes more relevant for founders.

Clear guidelines from this direction support start-ups in thinking about diversity from the very beginning. By their very nature, founders focus exclusively on those aspects that will help them grow. If the guidelines and conditions are correct, the room for change towards a diverse start-up culture becomes more significant and the pressure to act increases. What percentage of team members are female? What is the ratio of female managers? What is the start-up doing to promote diversity? These and similar questions from prospective financiers should be asked of founding teams in the future when they are looking for external funding.

If a real change occurs, we can't seriously wait for start-ups to compete with each other until the last one realises that female or mixed teams are more successful than all-male teams. Instead, change needs to be addressed structurally - and, as is almost always the case, the most effective way to do is to let the money do the talking. More diversity? Follow the money. If you do it with brains and not in an ideological way, everyone will benefit in the end: female investors, founders and customers... the entire German start-up landscape.

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Written by
Katrin Bacic

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