COVID-19 Venture

A Global Perspective: COVID’s Impact On European And American Female Founders & VCs

Illustration of woman at work.

Many horror stories have recently come out about layoffs in the startup world, in both the U.S. and  Europe. From Bird and Eventbrite to Yelp and Lyft, thousands of tech employees have been furloughed or directly laid off over recent weeks.

Hiring–even for many growth businesses–is in limbo. What exactly is the more medium-term effect that particularly early-stage companies expect the virus to have, however? And most importantly, how do these expectations differ between groups, say between American and European startups or between male- and female-led ones?

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Maren Bannon and Jennifer Neundorfer at Jane VC conducted a survey to address these questions (see the overall results here), complementing other pieces of data (e.g. this survey by a number of big EU VCs). Unlike other surveys, however, Jane, a fund focused on female founders and operating across continents, produced a much more comparative data set. They got answers from 175 U.S. companies and 75 in Europe–80 percent were led by females overall. I worked with Bannon, who kindly shared the data with me, to tease out some of the most interesting highlights.

The differences between European and American startups

What is not surprising is that in the sample, European companies had raised much less money than American companies ($500,000 versus $1.5 million) on average. Something that possibly also fueled people’s expectations: 62 percent of EU startups versus 43 percent of U.S. startups were fearful of the long-term effect of the pandemic.

At the same time, a much higher percentage of EU startups claim they have already taken measures to counteract possible effects: ranging from cutting team expenses (75 percent in EU versus 50 percent in the U.S.) to hiring freezes (42 percent versus 29 percent, respectively).

Alexis Rask, long-time operator now turned VC partner at Sweat Equity Ventures, confirms this slightly more optimistic outlook in the U.S.: “Nine of our portfolio companies are hiring–for early-stage founders it is a bit unique; we believe fundraising will recover more quickly for them, due to the investments being smaller and there still being capital in various funds. The most important thing for any founder is to focus on building a growing, healthy business with solid and responsible fundamental metrics.”

Bannon commented, “Founders outside of hubs like San Francisco haven’t had access to free-flowing capital, so scrappiness is built into their DNA. Taking swift decisive action right now and being realistic about challenges ahead can serve founders well. It gives me a lot of confidence in European founders.”

A look at gender

But let’s drill slightly more into the gender differences when it comes to the responses to COVID-19 and the more general outlook. Interestingly, in the Jane VC survey, women in Europe felt more disadvantaged as founders because of their gender (58 percent versus 50 percent), but also more supported in their ecosystem overall (58 percent versus 45 percent). Janneke Niessen from Capital T VC based in Amsterdam raised a curious point in this regard; she has experienced recently that women are more likely to ask for help or–even more generally–get in touch and communicate.

“Women ask for help more easily and more often–and earlier […] And I think that is a very good thing. If you don’t talk to others, you can be so deep in the problem that you lose sight of the bigger picture,” she said.

But female founders (and VCs) are more likely the ones who pick up the housework, homeschooling and care at home, as Matilde Giglio, VC at Hambro Perks notes.

“Women will be caught up in these other things making it even harder to, for instance, fundraise,” she said.

While fundraising initially slowed down for everyone, it might pick up more slowly for female founders. Megan Reynolds of Crane VC echoed that fear: “With people returning to the logic of ‘I just need to invest in what I know, what I am comfortable with,’ there is a risk there that could bias against female founders.” This could further perpetuate the inequalities built into the system (which I reported on before).

Sasha Haco, co-founder of Unitary, a company supporting contextual content-screening that came out of EF in 2019, is seeing herself and others face even more far-reaching problems. On the one hand, they were lucky enough to close a £1.3m round just before COVID hit, but despite having a long runway they are proactively cutting down costs and burn rates. Revenue, like everything else, is uncertain, according to Haco.

“We’re currently working to establish product-market fit, so we’re seeking early adopters who will try something new. Of course, everyone is currently cutting down on non-essential things, so there may be more reluctance to try new products in the short-term. We are focusing on customers for whom our product is a must-have, and luckily we are currently still getting good traction.”

The future

What will be the longer term effects, however?

Yvonne Bajela, principal at Impact X Capital, a VC firm focused on underrepresented founders in London, is critical of the U.K.’s Future Fund, the vehicle designed to help startups survive COVID-19.

“The LPs (such as large pension funds) have significant power and could cause a shift in driving diversity on the agenda of venture capitalists, but they are a long way off,” she said.

Mirroring Check Warner’s critique of the Future Fund, Bajela is fearful that it might bake inequalities into the ecosystem for the foreseeable future.

Chen Zhang, co-founder of Aquifer Motion in Austin, Texas, who just graduated from Techstars, found a possible silver lining of COVID, however.

“Now business comes first […] Numbers don’t lie, traction doesn’t lie,” said Zhang. “Companies that can weather and grow during COVID will be undeniably compelling to investors.”

While biases and pattern-matching will continue to negatively impact female founders, excellent work will still count. I would add, however: The ideal of meritocracy has not exactly made the world more equitable before, so it’s important to ensure that COVID-19 does not stifle the progress fantastic female founders and investors have fought for over the last years.

Dr. Johannes Lenhard is the centre coordinator of the Max Planck Cambridge Centre for Ethics, the Economy and Social Change. With fieldwork in Silicon Valley, New York, London and Berlin, his current book project focuses on the ethics of venture capital. His recently edited volume,  Home: Ethnographic Encounters, was published by Bloomsbury.

Illustration: Dom Guzman

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