A Small Sign of Progress on Gender Diversity in Tech
Two years ago Creandum started to actively measure gender diversity inside the funds’ portfolio, on the premise that what gets measured gets done. We have ever since then publicly reported our Creandum Gender Diversity Index (2018 + 2019). Here are the results for 2020, and although the balance is still male-dominated we do see some signs of progress.
A reminder of why diversity matters.
If anyone is still questioning why we care about this, it’s simply because of performance. We aspire to make the Creandum funds’ portfolio as successful as it possibly can be, and diversity plays a key role in that. There are countless studies on the topic and as an example, BCG and MassChallenge found that companies with a woman on the founding team delivered twice as much revenue per dollar invested than those companies run solely by men.
Equally important, a lack of diversity limits the problems that the ecosystem solves for. Founders address problems that concern them directly, and talent gravitates towards companies whose products excite them.
Although the impact of diversity on a company’s performance and problem-solving skills seems to be common knowledge in the tech scene, the problem remains entrenched, as numerous reports, such as Slush’s recent “Entrepreneurship refined” whitepaper points out. However, through the eyes of the Creandum funds’ portfolio, there’s a silver lining on the horizon.
Methodology.
Our Creandum Diversity Index is focusing specifically on gender. The impact of gender on startups is the most researched axis of diversity, and that data remains insufficient on most others. When we started this initiative two years ago, we agreed on rather doubling down our efforts on this specific topic, instead of covering the entire range with less vigour.
Each year, we send a poll to the portfolio company CEOs measuring the number of women across 3 dimensions in their respective organizations:
- across the whole organization
- on the management team
- on the board
In addition to this, for the first time, we also added a 4th data point related to compensation and the pay gap between the genders.
In total, this year we surveyed 54 portfolio companies of which 51 responded.
The results.
1. Whole Organisation: 40 % (+4 %)
This year, the Creandum funds’ active portfolio employee count more than doubled (!) to a total number of 7728. Almost 40% of those are female, lifting the percentage up by 4 points compared to last year. Even more compelling: Comparing to the change from 2018 to 2019, the increase quadrupled! Overall we think this is a great trend.
Looking deeper at the firms we already measured in 2019, 23 of them increased their female/male ratio while only 6 reversed it.
Out of the 51 portfolio companies in this study, 20% have hired an equal amount or even more women than men. Nevertheless, only half of the funds’ portfolio companies have managed to fill one-third of their jobs with women. And sadly, almost 25% of the portfolio companies have staffed less than a quarter of their positions with women.
Focusing on the twelve new early-stage companies that joined us within the past year, sadly, the average amount of females in those firms is only close to 30%, 10 points below the average across the portfolio. This low number is heavily connected to our data insight, that the bigger a company gets in terms of headcount, the more it’s focused on gender equality across the entire company. While ventures with less than 100 employees count only 33% of females on average, companies with more than 100 employees reach an average of 40%.
Comparing the different industries we invest in, it’s striking to see that digital health companies score way above the average, with each around 60% females. No matter if offline or online, healthcare seems to be predominantly a female-led industry.
2. Women in Management: 31% (+8%)
On average, there are 31% of females in management positions across the portfolio. Again, comparing it to last year’s increase, the number quadrupled, from a 2 % increase to 8 %! This is also a strong sign of progress, although we still see less than 1 out of 3 female leaders in the Creandum funds’ portfolio.
Almost half of the fund’s portfolio companies (48%) have at least a quarter of their management team made up of women, 22% have a third. And 8% of the fund’s portfolio has more than half women in management.
This is one of the most important metrics, as women in management serve as role models and heavily influence the total amount of women in the company. The data demonstrates that if the management team is at least 33% female, on average, organizations have a much higher likelihood of creating gender balance across the wider team. Even when only a quarter of the management team is female, organizations reach an average of 40% female headcount. Already one woman in the management team heavily improves the gender balance and we see an average of 37% female employees — only slightly below the average. When there are no women in the management team at all, the total headcount of women reaches only 25%.
At Creandum, we believe it is imperative for startups to provide those important role models. As a study conducted by Microsoft noted those role models in tech even influence the talent market even at an early stage, as the number of girls interested in STEM almost doubles when they have a role model to look up to. Hence, if there is one thing we as investors can do is to push portfolio founders to have gender diversity at the top of their mind and ensure they hire women into management roles.
3. Board members: 10.8% (+0.5%)
Looking at gender equality at boards it is still far from what we’d like the future to look like. At early-stage companies, board members are typically venture capitalists, angel investors, and trusted advisors.
Less than 40% of Creandum’s portfolio companies have at least 1 female board member. Still, that leaves the majority of companies with zero (!) female representation at their board meetings. Summing up, only 10.8% of all board members across the companies are women, which is only a tiny increase from last year (0.5%).
Similar to women in management, we see a correlation between female board members and total female employment. Once there are at least 25% of women on the board, the gender balance moves towards equality (48:52). Further, the amount of female board members also influences gender equality in the management: On average, there are 10% more women in the management when the board consists of at least 25% women in comparison to boards with only one female member. This correlation is new, for the last two years, we couldn’t see any impact on the gender balance caused by more female board members.
Still, seeing not a single company having 50% male to female board membership, there’s still a myriad of collective actions to be taken in order to speed up the progress of women to make it to the top.
4. Gender Pay Gap.
For the first time this year, we’ve started tracking the gender pay gap. How we measure it is not a perfect science, but it gives us a rough indication. We measured the pay gap by taking the median and average salary of all full-time working men divided by the median and average salary of all full-time working women.
Looking at median earnings our study shows that for every €1 a man makes, women make €0.82. Average earnings are very similar where women make €0.81 for every €1 of a man. Considering the gender differences in management teams, that tend to be the highest paying jobs, the results are not very surprising. The bottom line is that gender pay gaps are real.
Self-assessment: The unpleasant truth.
Each year, we are not only measuring our portfolio companies but also taking a closer look at our own numbers. Looking back at the past year we’ve certainly improved our gender balance: By adding two more female members to the investment team (Caroline and Beata) we have increased from 18% to 31% women in the investment team. Further, our total amount of women in the firm went up by 10 points to 43%.
As much as we love to compliment ourselves to this improvement, looking in the mirror seeing six white male partners, there remains a big lack of women at the top of our firm. We can’t deny it, venture capitalists are still a notoriously homogeneous bunch and going into the 2020s, there’s still a lot of work to do towards a more gender-balanced VC industry. The startup ecosystem can only ever be as diverse as those who fund it.
And while we think gender equality is a key topic for our ecosystem to solve, we acknowledge that diversity is so much more and conducting an annual study on gender balance is not enough. To that end, as a firm, we’ve also set out to do more. One key initiative worth mentioning is Included.vc where Creandum together with many other VC peers tries to open up the VC profession to people who otherwise wouldn’t have had access to our industry.
Further at Creandum, we keep proactively challenging ourselves as well as the companies we get to work together with. We look beyond the status quo in order to reach the full potential and think of actions we can take to further push this topic. We’ll continue to do regular unconscious bias training, highlight female role models within our ecosystem, actively push for gender diversity inside the board room of the portfolio and proactively look for female and diverse founders (reach out to us at any time: [email protected]).
Finally, we hope that part of Covid-19's silver lining will be a positive impact on diversity. As more companies will embrace remote work environments companies will be able to hire talent across a larger geographical area, which should foster better diversity. Let’s all continue to push this agenda and make our ecosystem even more successful. ? ?? ??