The venture capital (VC) industry has a diversity problem. In Europe, only 1% of capital is going to women-only founding teams, and somewhere around 4% of total VC funding goes to diverse founding teams.
The Estonian startup ecosystem, known for its agility and high concentration of unicorns, is determined to tackle the problem head-on. In 2022, female and mixed founding teams in Estonia raised 79.5 million euros, or 6% of total investments, while all-female founding teams attracted 7.2 million euros. Aside from Bolt’s record-breaking 628 million euros, all-female teams are at 1%. Still, just in a few years, the proportion of Estonian female founders has increased from 10% to 17%.
Now the Estonian founders of global companies are banding together to take a proper swing at the glass ceiling.
Yes – that glass ceiling is still there
The funding gap in high-growth entrepreneurship is no secret to most women, but many men are still shocked to hear the numbers. Just ask FoodDocs founder Katrin Liivat. Liivat was struck by the uneven distribution of awareness when she and other female founders started wearing T-shirts with the eye-catching slogan We are the f****** 1%, to highlight the underfunding issue. “At events, people ask me what the slogan means,” Liivat says. “When I explain what the 1% refers to, most men say, ‘No, it can’t be that little.’ But it’s a fact.”
Potential explanations for the funding disparity have included gender differences in technical training or risk preferences. Still, studies are making it inescapably clear that investors are simply reluctant to fund female entrepreneurs: A study published in 2020 found that female-led startups experience significantly more difficulty garnering interest and raising capital from male investors compared to observably similar male-led startups. Overall, the evidence is consistent with gender biases.
Kaidi Ruusalepp is the President of the Estonian Founders Society, the country’s first-ever IT lawyer, and the founder of Funderbeam, a global investing and secondaries platform for investors to buy and sell equity stakes in private companies. A lifelong stereotype-buster, she is also one of the driving forces behind this wave of women speaking up about the glaring gender imbalance in VC funding.
As Ruusalepp points out, it’s beyond any shadow of a doubt that while there is a perception that women-led businesses are somehow, particularly risky or niche, women are building businesses and technologies that are just as hard-hitting as any of the most successful male-founded companies. And they’re doing it with a fraction of the funding the men are getting. “When you look at the companies founded by women
in Estonia, we have DeepTech, FinTech, InsurTech – nothing like ‘just another dog walking app’. We run global businesses with global funding from the likes of Union Square Ventures in the case of Karoli Hindriks and Jobbatical, for example,” Ruusalepp says.
Kaidi Ruusalepp
“We have all these companies with international reach, but we are underfunded compared to male founders. 90%+ of the venture capital is managed by men, and they invest in similar founders.” Ruusalepp refers to this tendency as cowardly capital. “They don’t feel comfortable investing in something that’s different to where they come from,” she says. “We have to eliminate those biases.”
The potential currently stuck behind gender biases is immense. Against the odds, Estonian female-founded companies have raised somewhere in the region of 100 million euros between them. “What if we had ten times more funding?” Ruusalepp muses. “Where would we be? Maybe half of us would be unicorns. Maybe it’s worth deploying more than just survival capital to women founders?”
Mentoring is great, but funding is better
So how are women founders supposed to break through the glass when the odds are stacked so firmly against them? In 2022, Tessa Clarke memorably wrote, “Female founders need money, not more mentoring.” Sure enough, there’s no credible, science-backed reason to suggest that women aren’t raising money because they can’t pitch, or because their business ideas are inferior to men’s – the same 2020 study cited above found that the male-led startups that male investors express interest in do not outperform the female-led startups. Quite the opposite: they underperform in comparison.
So while mentoring is great – “We do a lot of mentoring of fellow founders,” Ruusalepp says – funding is needed more urgently. And getting those numbers up from 1% requires attacking the problem from every angle. “We are building successful businesses to bring down the barriers for the next generation of female founders,” Ruusalepp says. “We speak at conferences and to the media. And we’re working towards making successful exits, so that we ourselves have the capital to boost investment into diverse founders.”
We’ve come a long way, but…
A mainstay on the Estonian founder scene, Ruusalepp herself has been at the centre of the startup action here for years, and her faith in the Estonian community’s ability to change the status quo is unshakeable. She hopes that with purposeful action behind the goal, the growth of funding for female founders is going to be exponential, but 10% would be a good start. “We’re also aiming for 10% of all startup revenues in Estonia,” she says. “We’re already not far from that.”
Having brought the issue into the spotlight recently at the Estonian Startup Awards ceremony, along with other founders, Ruusalepp notes that even though the biases are embedded deep into society and individual mindsets, the reaction shows encouraging signs. The community is open-minded and ready for change, but like any big transformation, it will take time and effort. “One of the most difficult things to change is habits,” Ruusalepp says. “VC capital has worked one way for the last 40 years, and changing that is extremely difficult.”
If it were easy, someone would have done it already. But this group of bias-busting founders is rising to the challenge, emphasising that in addition to diversifying the VC landscape, much of the work needs to be done at home and in schools.
“We still have gendered education in our schools,” notes Karen K. Burns, co-founder and CEO of AI startup Fyma. Not much can be expected to change in perceptions as long as children are being raised within dated gender stereotypes that make it harder for girls to pursue entrepreneurship and careers in STEM – male-dominated fields where the environment tends to be more hostile towards women. “From a very early age on, girls shouldn’t be feeling like they are being treated special because they’re doing STEM stuff,” Burns says. “It should just be normal.”
There are plenty of initiatives already chipping away at the problem, and it’s not like these startup founders are starting completely from scratch. HK Unicorn Squad, founded by entrepreneur Taavi Kotka, empowers girls to choose a path in IT. The Tech Sisters non-profit has been encouraging women and girls to do the same since 2013, with their entry-level workshops and networking events. The Challenger Diversity Accelerator, co-founded by serial entrepreneur and investor Triin Kask and mentored by a number of Estonia’s most prominent female founders, focuses on increasing diversity and supporting startups with at least one woman on the founding team.
There is a lot of work already being done to change the biases and perceptions standing in the way of gender equity. It’s the age-old mantra of most seekers of gender equity: “We’ve come a long way. But…”
The onus now largely lies on the venture capital space itself. Estonia’s pioneering 1% do not plan to stop raising the issues, raising funds, and fearlessly nudging VCs to examine the patterns that are holding so much entrepreneurial potential hostage. “As a fund manager, think about where your money is going and why,” Ruusalepp urges VCs to confront and address their biases, whether they’re conscious or not. “Women can take risks, and we can grow the money.”
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