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Expert blog – April 18, 2024

The gender investment gap is still as yawning as it was ten years ago. Simone Brummelhuis, partner and fund director of Borski Fund, believes that pension funds and the government have a role to play in closing the innovation gap.

It recently emerged that several Dutch pension funds have made an investment in deep tech venture funds. It is a great step, which I also advocated before. It would be nice if pension funds had inclusive innovation in mind when determining their investment strategy.

Over the past decade, venture capital investments have quadrupled and the number of companies started by women grew to 35 percent of the total. However, the percentage of venture capital going to companies founded by women has hardly changed since 2012. Currently, less than 2 percent of Dutch VC capital goes to female entrepreneurs. So little investment money goes to multicultural founders that they hardly exist in the statistics.

Why is this so lopsided? The easy answer is: because we choose what we know and what we are used to. There are a number of reasons why this inequality persists, but there are also solutions. Inspired by an article from Harvard Business Review, I attempt here to translate solutions to the Dutch context.

Who is at the decision-making table?

Diversity affects the way companies find and identify entrepreneurial talent, evaluate opportunities, and allocate capital. On the investor side, only 6 percent of partners at venture capital (VC) funds are women. In addition, 87 percent of VC funds have no female investors on the team at all. Of the informal investors, 95 percent are men. It are these informal investors and VC funds that determine which innovations are invested in. For example, in scooters and second-hand watches and not in fem-tech.

In the Netherlands, an important part of the capital invested in VC funds comes from the government via RvO, the regional development companies (ROMs), the European Investment Fund and Invest-NL. Private money often comes from family offices and tech entrepreneurs who have successfully sold their companies. Here too, diversity at the decision-making table is still a major point of attention.

The consequence of this investment gap is not only a wealth gap, but also an innovation gap. The solution lies with the entire investment chain: it can use its position to close the above-mentioned gaps.

Venture capital is needed for inclusive innovation

Women together and women and men together develop different and sometimes even stronger innovations than teams with only men. Furthermore, these innovations are often also sustainable, but venture capital is not yet seizing this opportunity sufficiently. The cause lies in a number of well-documented reasons: gender stereotypes, unconscious bias, systemic economic barriers, and investors' preference for serial entrepreneurs.

Government lags behind in support for initiatives that tackle the status quo

As a venture capital fund, Borski Fund focuses specifically on technology and diversity. This is how we tackle the status quo. Yet we also encounter barriers in this regard. At Borski Fund, private investors have committed to 80 percent of the fund size, including all major banks, as well as some family offices and informal investors, 70 percent of whom are women. A very nice achievement.

However, the government has only joined through RvO, LIOF and NOM. If another major party such as Invest-NL or the European Investment Fund invested, the Borski Fund could make an even greater impact on inclusive innovation. The Dutch government does not (yet) have a 'gender lens investing' policy, while the EIF has already taken steps in this direction.

Institutional investors can create urgency and momentum

Institutional investors – universities, pension funds and insurance companies – are the lifeblood of venture capital in the USA, but are now participating in the Netherlands for the first time. Let them apply a gender lens to their venture capital policies from the start. Especially now that board members and pension fund managers indicate that diversity and inclusion are important.

In particular, those pension funds whose supporters consist of many female employees have a pioneering role in investing in inclusive innovation. From their position, they can make a meaningful difference by financing specific venture capital funds and holding other funds accountable. In addition, they can adopt new guidelines to promote investing in venture capital funds that are committed to gender diversity.

This has already been done for the climate

Institutional investors, whether working individually or collectively to force systemic change, have done this before. By mid-2020, nearly 450 institutional investors representing more than $41 trillion in assets have joined the Climate Action 100+. They set specific targets for board representation and emissions reductions and put pressure on companies to make more climate-friendly choices.

The positive result is more transparency about a company's carbon footprint and better data about the flow of capital to companies based on climate-relevant activities. In a short time, institutional investors created an urgency and momentum for climate action that had not previously existed on a large scale.

From the exception to the norm

If large amounts of venture capital are provided to diversity, the economic impact will be far-reaching and women entrepreneurs will use their talent, experiences and insights to build start-up companies into large profitable companies. And there will be more innovations that will make society as a whole better. But this will only happen if we push through systemic change and shift funding for promising women and multicultural founders from the exception to the norm.

We continue to argue that the government explicitly takes its role in the field of inclusive innovation, just as pension funds can do.

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