Estonian founders and funding - from gender perspective

In March 2021, a report entitled “Funding in the CEE Region: through the lens of gender diversity and positive impact” was published under the auspices of Experior VC and Unconventional VC. The aim of the study was to find out how much have startup founders by gender (male, female and mixed gender team of founders) in Central and Eastern Europe (CEE) raised money from investors. 

Analysing 897 start-ups, quite surprising results were obtained. It should be noted here that 4% (38) of the responding start-ups were established by women only, 9% (77) by mixed teams and 87% (782) by men only. The results of the survey revealed the fact that female founders raised only 1% of the invested capital. For mixed-gender and all male founding teams , the figures were 5% and 94% respectively. Whereas, when looking at the ratio of turnover to investment, companies established by women have a 96% better indicator than companies with only male founders. The report did not draw any fundamental conclusions as to why, despite the very good results, women founders are attracting so little funding, but one option highlighted the gender one-sidedness of investment funds in CEE. Namely, 85% of decision-makers in venture capital funds and 93% of partners are men.

But what is the situation in Estonia, where 15% of more than 1,000 start-ups are founded by women and where only one of the partners of the seven active venture capital funds is a woman? To calculate the results described below, the data have been taken from the database of founders and investments managed by the Estonian Founders' Society (for the aforementioned report, data on start-ups were taken mainly from the startup database of Slush). In order to approach the initial task more dynamically, the data of the last three years (2018-2020) have been analysed. In this paper, we only analyse the results related to investment attraction. Let's start by looking at the number and size of investment transactions and their distribution between men and women founded start-ups.

Table 1. Number of investment transactions of Estonian start-ups and size of investments by gender in 2018-2020.

Indeed, Estonian women founders have attracted many times less investment than men, although the difference is decreasing notably year by year. If in 2018 female founders involved 0.99% of the total volume of investments, then in 2019 the corresponding indicator was already 3.24% and in 2020 there was a slight decline to 2.95%. There is also a significant difference in the average amount of investment involved per founder - in 2018, a male founder raised an average of 3.4 times more money than a female founder. In 2019, the corresponding indicator remained in the same range (3.6), but in 2020 the difference had narrowed to 1.3. So looking at the big picture, it can be said that year after year, the trends in the world of investments are moving more and more favourably for female founders.

Here, however, attention must be paid to the fact that most of the total volume of investments has involved only 5-6 companies over the years. For example, Bolt brought on EUR 250 million in 2020, representing more than half of total investment that went into Estonian startups. To reduce the effect of variances on the calculation of the average, the average transaction size is taken as the median. If individual transactions over 10 million are excluded from the calculations, the picture will obviously change.

Table 2. The number of investment transactions of Estonian start-ups under EUR 10 million and their average size by male and female founders in 2018-2020.

As can be seen from table 2, Estonian women founders are doing better and better results in raising money. Of the total volume of investments of less than 10 million euros, they attracted as much as 17.43% in 2020! This is remarkable because approximately 15% of the founders of start-ups in Estonia are women. The difference in the average transaction size per female and male founder shows a similar trend as in the calculation of the total volume of investments.

Let's also look at what is happening only in Estonia - how much Estonian founders have attracted money from Estonia's own investors and what has been the dynamics of female and male founders over the years. Promptly - the results are very gratifying!

Table 3. The volume of investments attracted by Estonian start-ups from Estonian investors and the average size of investment by female and male founders in 2018-2020.

Female founders are attracting more and more investments from Estonian investors, and in 2020 a proportionally positive position was reached - 15% of the founders of Estonian start-ups are women (in 2015 it was even more, approx 18%), and 15.90% of the total volume of investments received were start-ups with female founders. If in 2018 the average transaction size per male founder was 2.2 times higher than in the case of a female founder, then in 2020 the halves had changed - a female founder raised 1.1 times more money from Estonian investors than a male founder.

Based on the data of recent years, it can be said that Estonian female founders have made a significant leap in attracting investments and it is to be hoped that more and more women will join the start-up sector. Estonia is setting an example not only as a breeding ground for unicorns, but also as a creator of a diverse community where everyone has equal opportunities to succeed.