Advice from a VC focused on female-led startups

“We know something is broken,” Rixt Herklots, Director of The Next Women, said. When only 0.8% of Dutch Venture Capital funds since 2008 were invested in female led startups, there’s clearly something going wrong.

The Next Women is a network of female founders and investors based in the Netherlands. In 2014 they launched their first Angel Fund backed by 80 female investors and invested in 30 female led startups. Since then they’ve launched the Borski Fund, a VC fund that’s already averaging around 500k in revenue.

Sitting in the lobby of the Amsterdam Epicenter, Rixt explained a situation that happens time and time again. When talking to a fellow VC at an event, he told her, “Rixt, I want to invest in more female-led startups, the problem is that I have 400 pitches on my desk and not one of them is a woman.”

“Well,” she said, “I have 400 pitches on my desk and they’re all from women.”

The rise of the #FundRight movement has proven that we are aware of the funding gap between men and women and we want to change it. But what’s stopping this change from happening?

We spoke with Rixt about what’s holding us back and how VC firms can attract more female tech talent.

Are less women applying for VC funding?

The Next Women isn’t just a VC fund. The Network side of the organization is focused on educating female entrepreneurs about the ins and outs of pitching and preparing for VC funding. And education is a really important side of the story. As Rixt explained:

“What we see is that there's a gap in funding but there’s also a knowledge gap. Women are risk aware. So, if they don't understand the full picture, they’ll see more of a risk and won’t be comfortable taking that step.

If you look at the sociological/psychological side of how we raise different genders, women tend to be raised more as part of the community and as caretakers, needing to be there for others. There's this sort of burden on our shoulders and that makes it more difficult to take these big leaps of faith and just go for it. Meanwhile, men are raised more as individuals so they often feel that they can take more risk.

What you see happening is that a lot of women keep funding themselves with their own cash flow and growing organically. In the end, that does build very sustainable, long term businesses.”

But for those companies that could use a capital boost, The Next Women organizes funding morning cycles where they help review founders’ pitch decks, investor memorandums and term sheets. They also help entrepreneurs determine when it's the right time to go for funding, what different opportunities are out there, and what the granular growth path would be. This educational journey goes across the spectrum, from preparing for their first pitch to angel investors to applying for VC funding.

“There's a different mentality. I'm not saying that there aren’t a lot of women who already go for venture capital funding because, as we’ve seen with our own fund, they do. But, in general, you'll see that if women understand the full picture, then they're also more keen to go for it.”

It’s not about simply inviting women to the game, it’s about rethinking how it’s played

A study by the Boston Consulting Group found that, for every dollar you invest in a female-led startup, they generate 78 cents in revenue. While for every dollar that you invest in a male-led startup you get 31 cents. And, indeed, the fact that so many more female led startups fund their own growth is a testament to their ability to bootstrap and create lean, sustainable businesses.

Yet, according to Techleap’s Gender Diversity Report, between 2008-2019 only 5.7% of Dutch VC firms invested in startups with a female co-founder. And, female founders that did receive funding received significantly less per round than their male counterparts.

“The game is played on different stakes. It's set in such a way that you're investing in 10-20 companies, knowing that 90% will fail but looking for that one shooting star that will make up for everything. That's the name of the venture capital game.

And that’s not the way that women in general build companies. I've never really spoken to a female entrepreneur that's just in it to make money. There's a lot of them that are profit driven, want to be successful and make it big, but it's never the sole driver. Often female founders are looking to make a longer-term, social impact, provide for their employees and their community.

But I have met male entrepreneurs who say, I just want to be a millionaire by the time I'm 40 or I just want to shoot big and then go home. So there's a different mentality.

And that also translates into the communication of these VC funds because they're looking for companies that want to go big, fast, hard and not to the ones that might have slightly more gradual but stable growth.

How are we going to create that change? It's not by saying, ‘This is the game, this is the way we play it. If you want to join our club, then you need to learn the rules and wear the right jersey.’

It's about looking at what our current situation is, what the roles and motivators are, and asking, ‘Why isn't everyone already in? What are we doing right now that's excluding a large portion of the population?’”

How can a VC firm improve their diversity?

As Rixt explained, the first step is awareness, “I think that we’re lucky to be living in a time when we're becoming more and more aware of what it could mean if everyone got a place at the table.”

But now, it’s time for action. Here are three tips Rixt shared to help VC firms become more inclusive:

  • Change the way you communicate

“It's about communication and how you position yourself. It's about being aware of the fact that our language is not inclusive. Our default language setting is male focused and the VC game is really male focused. There’s an underlying bro mentality that’s driven by growth, success and making a whole lot of money.

It's that risk that men can take, while women feel more pressure to think about it twice, or three, or four or five times,” Rixt said.

The language we use can have a much bigger impact on who we attract and who we exclude subconsciously. That’s why companies, like Textio, have popped up to help companies create more inclusive job ads and attract more diverse talent.

This can take time, but some simple things you can do now is to actively mention on your website that you’re investing in female founders. If you’re a member of #FundRight, put that on your front page.

  • Collaborate with other institutions on the ground

Partner up with organisations like The Next Women and others that already have a community of female entrepreneurs. However, the important thing is to also value what they're doing.

According to Rixt, “For us a big challenge is that VCs always see themselves as being the ones bringing value because they're giving female founders an opportunity to pitch for funding. But they should recognise that these collaborations are also bringing them a great opportunity to find new talent and diversify.”

  • Diversify your own team

“I think one of the biggest things to do, and one of the most difficult ones is actually diversify your own team. Male VCs often say, ‘If women really wanted funding, they would knock on every door.’ But that's not true. Because it’s not happening the other way around either.

I've been with the company now for four years and, I can honestly say, I can count the amount of times male entrepreneurs have had the guts to call me and see if I can help them on two hands.

Men are not approaching women, or female institutions. Instead, they go to the companies they feel represent them. If you change the faces behind the organisation, your output will change.

There's so much more to the story than just being a venture capitalist and saying, ‘Yeah, we're not investing in women because they don't pitch us or because they're not bold enough.’ It’s about meeting somewhere in the middle. And that's what we’re trying to do within our network: Educate women about the rules of the game. And then on the investor side, try to change the game and make it more inclusive,” Rixt said.