Sweden's investment pattern is both risky and unequal.
One of the owner's most important tasks is to establish a board of directors to guide the company's direction. For us, it is therefore critical to get involved in increasing the spread of ownership between genders and other minorities and to spread the word about the issue and its solutions.
Our guest columnist Katja Nordman has deep dived into the subject in her thesis “Female founders: a success factor for startups, but not for investors”. She has investigated the gender gap in investments in Sweden and what public policies can do about it. In this article you get a summary of her findings and her suggested call to action.
Katja Nordman is a Brand Strategist and an Executive MBA-graduate from Sorbonne in Paris.
Sweden is regarded as the most equal country in the EU in most categories; however, when it comes to the economy and investments, we only rank twelfth. After working in the financial industry for six years and interviewing seven female entrepreneurs and three investors on the subject of investing in female startups, I can say that I am disappointed in Sweden. Female startup entrepreneurs received only 0.5% of all investments made in Sweden in 2021. Startups with only male founders, however, received 88.4% of the investments. It’s not that there aren't that many female startup founders; in Sweden, 26% of all entrepreneurs are women. It also has nothing to do with female entrepreneurs not trying enough, since they participated in 5.6% of venture capitalist rounds in 2021, yet only 1.4% of them received financing.
One possible explanation I got when interviewing a male investor was that women don't have as many innovative concepts as men. According to the current research, this is not the case. For example,female startups have a return on investment of 0.78 for every $1 invested, while male startups have just 0.31. Another example is that when a venture capitalist company did a study over 10 years, they found that startups with at least one female founder outperformed startups with only male founders by 63%.
So what makes women successful? In addition to the fact that diverse teams are generally a success factor by themselves, in my research I could also see a pattern in what the investors, the female entrepreneurs, and previous research perceived to be typical success factors for female entrepreneurs. For example, it is less risky to invest in female entrepreneurs, as they do not take as much risk themselves and are generally not leveraged to the same degree as male entrepreneurs. They also tend to repay the loans faster and more often, as well as being better at engaging their employees and have more caring and empathetic leadership.
As a result, the employees are more loyal to the company and work harder and they do not burn out as quickly. Women also contribute with a more long-term overall perspective and often have a network around them that is happy to contribute and support them unconditionally.
All the entrepreneurs interviewed mentioned one success factor in common: the desire that drives them to establish businesses. Although the entrepreneurs interviewed came from different sectors, they all felt that the most important thing for them was not making money but their contribution to society. One of the interviewees even said that if she could, she would have given away her products for free because she wanted everyone to be able to take part in what she had to offer. This is also consistent with current research showing that 17% of all startups with female founders are driven by social impact, while the same figure for startups with male founders is 8.4%. It is a success factor for society at large, but not when it comes to getting investment, as investors mostly base their invested capital on profits in the companies.
So, based on this, how do we close the gender gap in the investment world? Both the state and the investment companies have a responsibility to solve the problem. One proposal is to create policies, either governmental or from SVCA (Swedish Private Equity & Venture Capital Association) and Almi, that favor investments in companies driven by social impact. This could help both society and the gender gap in investment, as the majority of founders in these startups are women. In addition, the investors would not lose any money, as they would receive a grant for investing in them. So what are we waiting for? It is the year 2023, and Sweden is investing both unnecessarily and unequally - We must act now!
If you want to know more about this subject you can read her thesis here or her summary of the thesis here. And if you want to get in touch with Katja, you can contact her at: katja.nordman@stratvise.com or at her Linkedin.