“Only 1% of capital goes to female-only teams”. Year after year we encounter the same disheartening statistics in headlines. While it is apparent that there is a long way to go to close the gender gap in VC funding, it is crucial for female founders to recognize that the 1% does not represent their odds of securing funding.

That figure must be contextualized by considering the number of women seeking VC capital. Although there is no reliably documented figure, most records estimate that fewer than 10% of all teams pursuing VC funding are female-only teams.

At Spintop Ventures we are deeply committed to diversity and can proudly say that we have invested in 38% female-led teams, as of Q3 2023. This is not a result of actively favoring female entrepreneurs over male entrepreneurs; rather, it has occurred organically as we have selected the best teams with the strongest ideas. By remaining vigilant against biases and employing well-documented, data-driven processes, we can choose the best companies based on facts and data. At Spintop we have clearly defined decision tollgates. We strive to be strictly meritocratic in our decision-making. Facts, and argumentation based on facts and logical reasoning are what matter when we discuss and reach conclusions as a team. All voices are equal. Opinions and judgements are not accepted unless properly backed up. Once a decision is made, we all stand together, sailing and occasionally failing as a team.

A contributing factor to our diverse portfolio may be that we, and our portfolio companies transparently report on ESG metrics. This helps keep diversity top of mind for us and our portfolio companies, enabling us to track KPIs and improve over time. Gender diversity matters to us, and we want to do our part in driving a positive trend by encouraging and supporting women who seek VC funding.

Numerous research studies indicate that diverse teams outperform homogeneous teams. Diverse teams bring a broader range of perspectives and problem solving approaches to the table, which can lead to more innovative and creative solutions. Due to this, diverse teams are also more likely to challenge each other’s assumptions and think outside the box. In 2018, McKinsey & Company examined data from over 1,000 companies and found that those with more diverse executive teams were 25% more likely to outperform their peers financially. The study also found that companies with more diverse boards of directors were 35% more likely to outperform their peers on innovation metrics.

At Slush this year, we hosted a session exclusively for female founders. In this session, we delved into one of the most common reasons companies, irrespective of gender, face rejection from VCs. We also discussed the unfortunate reality of investor biases and effective strategies to counter those to maximize funding for your company. The key takeaways from our session are provided below:

Fitting into the VC Model

Founders, irrespective of gender, face rejection from VCs. It often boils down to fitting into the VC model. Understanding how VCs operate can help founders nail the pitch that will get them a “yes” from the VC. In simple terms, it is about showing that your company has the potential for rapid growth in a short period of time, backed by a team who wants to build a unicorn. VCs often have to decline great businesses simply because they don’t align with the VC model. Below is a simplified breakdown to guide founders on what they need to showcase and achieve to attract VC funding. These calculations will differ depending on the stage and focus of the fund. There are numerous additional examples available online.

Similar to how startup founders pitch to investors, VCs also raise capital from external, often institutional, investors. These investors typically anticipate a minimum 3x return on their investment. For instance, if a 100 MEUR fund is raised, the VC needs to generate at least 300 MEUR to satisfy their investors. A typical fund lasts for 10 years, with the first 3-4 years dedicated to investing in new companies, and subsequent years focused on driving value to achieve significant exit potential before the 10-year period concludes. VCs will typically have multiple funds stacked, running in parallel. An active investor of this fund size, due to this, is likely to have the capacity to invest in no more than 20-30 companies per fund.

Early-stage investors typically invest before a company has found product-market-fit. It is a high-risk stage to invest in. Statistically, a seed/series A investor can anticipate about 20% of the companies to fail, meaning there is no return. Approximately 60% will be moderately successful, yielding an average return of 1.25x, but not nearly enough to cover the 300MEUR expected by the investors. The VC can expect approximately 20% of the portfolio to be superstars and deliver at least 10x.

When investing, VCs won’t acquire the whole company. An ownership stake of approx. 5-20% can be expected, which typically diminishes with dilution from each subsequent financing round. For the purposes of our example, let’s assume a 10% ownership. This implies that if we invest in 20 companies, our “superstars” would need to return the majority of the funds expected by our investors. They would need to provide a combined exit value of 2 BEUR. Given these statistics, at the point of writing the initial ticket, a VC will seek to identify those companies with the potential for a unicorn-exit. Unicorns are rare, as the name suggests; therefore, most “superstar” exits will realistically be below unicorn valuations. Ideally, the VC wants all their investments to initially possess that potential, as it takes several years to discern which companies will provide merely satisfactory returns and which ones will evolve into superstars.

As a founder, clearly articulating your ambition to build a unicorn and substantiating it with validated assumptions, grounded in the market which you operate in, makes it challenging for a VC to decline investment.

It is important to highlight that VCs often decline excellent companies simply because they do not fit the model. If, as a founder, you do not aspire to make the unicorn-journey or recognize that your company lacks unicorn-exit potential, there are other pockets to raise capital from. For instance, raising 1 MEUR from an angel investor (at 9MEUR pre-money), and making a 50MEUR exit, would leave the angel investor happy with a 5MEUR return, and potentially happy founders with a 45 MEUR return. It would however not be a good investment for a VC.

Countering investor biases

During our session we highlighted a study titled “We ask men to win and women not to lose” (Kanze et al., 2018​). The study sheds light on gender biases present in investor feedback provided to entrepreneurs during pitch evaluations, and how responses to biased questions can impact the amount of funding raised. The study revealed a disproportionate tendency to pose preventive questions to women, focusing on potential challenges, while men were often asked promotional questions, emphasizing the positive aspects of their companies.

We chose to focus on this study as it provides tangible take-away that can be utilized by female founders to their advantage. We also wanted to share this study as it brings attention to how detrimental investor biases can be to the fundraising process when founders are not aware of such biases.

The study showed that those entrepreneurs who were asked largely promotional questions went on to raise 7x more capital than those who were asked preventative questions. Given the gender bias, male entrepreneurs went on to raise significantly more than their female counterparts, despite there being no difference in promotional/preventional language used in the pitches themselves.

The study highlighted however, that those entrepreneurs who switched focus, answering a preventative question (“how will you avoid losing market share…”) with a promotional answer (“I will succeed in growing market share by doing x,y,z…”), went on to raise 14x more than those who mirrored a preventative question with a preventative answer.

It is important to remember that preventative investor questions are valid. However, they should not be disproportionately directed at women. Until more investors become conscious of their biases, it’s vital to make female founders aware of this dynamic. This awareness empowers them to take control of their responses to such questions in an effort to garner higher amounts of funding for their companies.


Advice from our female founders 

We asked female founders from our portfolio companies to share their best advice to aspiring female entrepreneurs. Below is a summary:

  • Follow your gut feeling, find your “spike” and passion, be authentic.
  • Allow all what you are. Don’t try to fit into a mold, people will feel that. 
  • Learn from failure, iterate fast on changes. 
  • Learn from feedback and mistakes. Don’t fear these things. 
  • Bad recruitments steal energy, be patient, find the right person, even if it takes time. 
  • A person who isn’t a good fit can bring the whole team spirit down. 
  • Ask for help and reach out for advice, a great way to build network and support through ups and downs. 
  • When everything is tough, remember that you are part of changing our society by paving the way for the next generation. Other women will benefit from what you’re doing, the same way that you’re benefiting from what women have fought for previously. You are a part of something bigger than yourself and your company. 

Female Founders Forum

In line with our commitment to support female founders, we have launched a forum for female founders intended to provide a space for female entrepreneurs to share insights, experiences, ask questions, and connect. We will also be hosting meetups where we hope to facilitate valuable networking opportunities among female founders. If you are interested in joining, please reach out to Isabel Nilson.