Last summer, Switzerland-based greentech startup SustainCERT closed a $37 million investment round to scale their digital solution for verifying the effectiveness of corporate climate action. This round is particularly noteworthy for an early-stage startup, especially considering the company has a female co-founder and CEO, Marion Verles.
Recent funding rounds, such as SustainCERT’s, are starting to foster hope that the dismal funding situation for women-led startups — currently at just 2% of all capital allocated across the continent — might soon begin to change. This optimism is particularly rooted in the sustainability space, notably in climate tech or GreenTech more broadly. As the head of an accelerator for female founders in GreenTech, I recently polled our advisory board of top female European investors and supporters. Impressively, 92% expressed optimism that women-led startups focusing on GreenTech products will see an increase in funding over the next three years. Considering that the 2% funding rate has barely shifted in the past decade, this positive outlook is indeed notable.
Climate tech is Europe’s fastest-growing seed-stage sector. European climate tech startups had a record year in 2022 with $13.2 billion in investments, representing 13% of total venture capital funding. Although this abnormally high level of funding dropped in 2023 as investors react to the changing economic landscape and wait to see how trends and regulations evolve, investment into climate tech ventures is set to dominate the VC landscape for the foreseeable future.
Studies have long shown that women leaders tend to build companies that combine financial ambitions with a social impact, and this is playing out in the fight to net zero. As one investor clarifies “There is a common misunderstanding that women only look into femtech and beauty tech, but there are plenty of women out there who are working on deep tech solutions that are engineering or science-based”.
Funding women-led startups should be a no-brainer. Women score better than men in key skills such as leadership, problem-solving and innovation. Investing in female entrepreneurs generates higher returns for society as a whole, both because women invest more of their income in their communities compared to men, and because female-founded businesses tend to employ 2.5 times more women than male-founded businesses.
So why are women founders systematically and historically excluded from early-stage investment? The same poll as above found that even investors admit that investor bias is the key hurdle to overcome to shift the funding landscape for women. The European Commission found that “investor homophily” — attraction to similarity — is a significant cause of the imbalance at the fundraising level. Given that only around 5% of angel and VC investors across the region are women it’s easy to see why funding to women remains so marginal. And not all of this bias is unconscious. I recently spoke to one founder who told me about one investor who bluntly said “We don’t invest in women founders” and another one told her to find herself “a gentlemen co-founder.” As Cécile Sevrain, an investor from Tiime, succinctly puts it, “The face of capital is white and male, and if that doesn’t change, investment into women and underrepresented groups won’t change either”.
The organization I work for, Village Capital, recently worked with the IFC and a consortium of partners on research to determine if there is anything that can be done to address the gender financing gap in the interim. The answer lies in reviewing the investment process, which is flawed. For example, investors were found to ask women-led startups more risk-related questions and men-led startups more growth-related questions leading to consistent overvaluations of men-led startups. Having investors adopt a standard evaluation framework for all startups is one way to even out the way startups are assessed.
Another solution is to move away from a venture-based capital financing system. Grants, revenue-based financing or crowdfunding campaigns are all viable options for early-stage startups in the climate space.
Whether it is changing the investment decision makers, the investment process or the type of capital being invested, change is needed fast. The International Energy Agency estimates that by mid-century almost half of required emissions reductions will call for technologies that are not yet on the market. This shows us that time is of the essence to build the support and investment communities that women Greentech changemakers need to develop and scale their products, fast.
Read the orginal article: https://www.eu-startups.com/2024/01/greentech-emerges-as-the-sector-poised-to-address-the-gender-financing-gap-in-startups/
