Venture Capital Financing in Europe: Gender and Ethnic Diversity in Founder Teams

Abstract

Recent research has shown that an embarrassingly small proportion of entrepreneurs who obtain venture capital (VC) funding in the United States are females or members of ethnic minorities. Although access to venture funding by gender and ethnic origin has been well documented in the United States, much less information is available about the situation in Europe. The authors address the financing of gender and ethnically diverse startup teams in Europe and examine the relationship between founder team diversity, VC funding, and startup performance at venture-financed businesses. They use data on all recorded European venture deals over the period 2010 to 2020 for startups that have raised more than USD 1 million including all rounds and financiers, augmented by identifying founders by gender and ethnicity. For these startups, gender diversity on the founding team is not associated with raising VC funding in their first round of financing, while ethnic diversity plays an important role in both the amount of VC funding raised and venture performance in certain sectors and countries. A carefully designed investment strategy that builds on a preference for diverse founding teams in some sectors may therefore provide favorable returns.