Introduction

Although many startups seek venture capital to fund their next growth stages, VC funding is limited. In fact, Fundera reported that only around 0.05% of startups that seek venture capital actually receive this type of funding.

The odds are even worse for underrepresented startups, such as those led by women and people of color.

In 2023, women-founded startups in the U.S. received only 2% of VC funding, while female-led startups in Europe received only 1.8% of the total capital of VC-funded startups, PitchBook revealed. 

As of 2022, Crunchbase reported that only around 1.1% of all VC funding in the U.S. went to startups with Black founders.

The lack of representation is not only in the startups that receive funding but also among the people who are offering the funding. As Harvard Kennedy School reported, only about 13% of VC investors are women.

In response, more and more investors—particularly those that are underrepresented—are breaking barriers to see more diversity within venture capital.

A conversation with Sophie Winwood, CEO and Founder of WVC:E

With several years of VC investing experience, Sophie Winwood, CEO and founder of WVC:E (Women in Venture Capital: Europe), has heard many pitches from startups. But what she noticed was a major lack of investments in companies with diverse leadership.

After noticing these VC trends, Winwood became passionate about diversifying the VC industry, both in terms of who was investing and who was receiving the funding. 

In 2022, she and Ruth Foxe Blader, founder and partner at Foxe Capital, decided to organize a summit for women in VC funding in Europe with huge success. They co-founded WVC:E and are now expanding beyond Europe as they work to make VC more inclusive and empowering.

Winwood sat down with HubSpot for Startups to share more on her perspective of the VC process, along with tips for fellow underrepresented startup founders to secure VC funding.

HSFS: Can you share your perspective on the current fundraising scene for underrepresented early-stage founders?

Sophie Winwood: Fundraising, in general, is still pretty difficult. We've seen timelines really extend, from just speaking to a company that raised its pre-seed in two weeks, and seed is now looking like it's going to be three to four months. That's a very significant jump up. It's become an investor-friendly market; therefore, more time is being taken by investors, which I think is absolutely a good thing for both sides. 

For founders, obviously, it's really tough out there with fundraising, but I do think you want an investor who really does know your business and has built conviction because they're more likely to be a long-term player and support your business going forward if they really understand the business and build the relationships before investment. 

There are some exceptions to that, and we are still seeing these hype-y 2021 and 2022 rounds with AI and actually with climate and impact. But I think what's interesting there is that they're very, very large rounds with completely different, almost returns profile to what we would traditionally invest in. So, I think the jury’s still out on whether that is a good investment or not, given the timelines, the quantum capital that's needed, and the size of funds, especially in Europe, that can support that. 

It's a very weird market at the moment. There's still a lot of capital. I've seen a slight uptick in activity and the deals that are being done, but from the founder's point of view, it's still a very, very tough environment. 

HSFS: What helps founders stand out to investors during the fundraising process?

SW: If you talk about CRMs and technology, it's almost table stakes now. Given where we are with that technology, it almost feels silly not to be using that sort of stuff, if that makes sense. So, I wouldn't say that's a differentiator. That's almost like we would expect our startups to have some form of strategy, which includes both network-driven technology and thinking about the market and where they play. 

The founders that are raising quickly from good investors at a good price fall into two categories. One is just great traction, so revenue, revenue growth, and a good story to understanding unit economics and profitability. I think there are a lot of things out there that say that companies have to be profitable or have to have a path to profitability very quickly. I think that's, excuse my language, I would say bullshit because that's not venture. We are here to enable business models that will become profitable one day but need capital to get there. 

But I do think one of the things is when founders start, they really understand their business model, and they understand the levers they can pull to get to profitability when they need to. It's a lot more about knowledge around that side of it, fundraising, the venture market, and how that all works. 

Unfortunately, the diverse founders are being hit in two ways. One is they don't have the experience. They haven't been in the industry, and they don't have the networks or the language. The second is when we're in this sort of market, which seems ridiculous to say, but venture capital becomes less risky. Diverse investments are seen as more risky because there's no data there to say that there are X many exited female CEOs feeding back into the ecosystem and providing role models. It is kind of hitting them doubly hard in terms of the knowledge and then also the understanding of what the returns they can drive.

HSFS: Are you seeing a shift in underrepresented early-stage startup founders who are seeking grants or corporate VCs? Is there a better path to funding?

SW: I actually applied to the Innovate UK Women in Innovation Awards for WVC:E. They said they were going to fund 50 female founders. It was a pot of $4M, and they actually ended up only giving out 25. Everyone went a bit mad. I put hours and hours into that application. So did many, many others. And for them to not even fund 50% is a really gutting indictment of female founders’ potential. Everyone kicked up a big fuss. They've now handed out the other 25 awards. 

But I think when people say, “Oh, it is great because there are so many more of these grants for female founders,” what they're not seeing is how much time and effort and time away from the business that takes for what are pretty small grants. I think this one was a max of around $80K.

Corporate is an interesting one, and also, a lot of people are kind of relying on friends and family and doing more of that sort of angel round. But I think it's really tough. It's like there aren't that many pools of capital, especially if you want to build a venture-backed startup. But then that's the other question: not all startups should be venture-backed. I think a bit more education around that, the different paths, and debt is another route that you could get if you're building a business model that makes sense. I would love to say that there are all these optional pools of capital that people are sweeping up, but that's just not the case.

HSFS: What things can early-stage startups share to show their potential to VCs?

SW: What I urge all my founders to do is to really pick out that one unique selling proposition (USP) or that one thing that is really unique to them as a founder or as a company. That could be a differentiated go-to-market, a tech or data advantage, or an underserved market, in which the founder has experience. There needs to be something like that where there is a reason why we are giving money to this founder, and they are going to—against the odds—build a really successful and big company with the money that we are giving them. I think that's the first thing. 

The second thing is just to think big. We really do want category-defining businesses that will change the status quo, and we're looking for those breakout ones. Really understand your competitive market and why you're different, then sell the dream while being able to ground that in reality. It sounds counterintuitive, but you do need to be able to sell this big vision and show that you want to get there while saying this is where we are now. 

The third thing is that if you're an early-stage founder, you will not have many data points. We get that. That is the whole point. But what you need to understand is, in order to get to the next stage, what hypotheses do you need to prove to get to that next stage, and how are you going to test them? Then I, as an investor, gain real comfort that you're thinking about this quite granularly and scientifically and that you're able to test and pivot quickly. 

The best founders that I've worked with aren't necessarily the ones who get all the hypotheses right, but they're the ones who are able to use that data to change what they are doing very quickly.

HSFS: In terms of investing in underrepresented founders and growing this space in Europe, what things are exciting you most?

SW: I think that the unlock that we will get as an industry by investing in more female founders is crazy. That excites me so much. We're seeing that a little bit with the rise in the interest of FemTech, which is an industry that is based on an agenda that has been completely ignored until 2024, which is crazy. But the fact that now we are seeing a large amount of investment going into this is showing that the venture ecosystem is waking up to that. 

What excites me about the founders I work with is that if you have a diverse team from the ground up, you hire diverse teams when scaling. 

It’s like a double knight when I work with all-white male teams, and it’s like pulling teeth, getting them to hire diversely. It's the same question and excuses, which is, “Oh, we are moving really quickly; we need to get this hire in. We can't find any diverse talent.” 

However, for my female and diverse founders, that's not even a difficulty. But when it is, they lean into it, and they're like, “Okay, this is not good enough. We're going back out to the market,” and you just get better. There's so much data around diverse teams being better than non-diverse teams, and it completely makes sense as an industry where our whole model is diversification. The way to get good returns is diversification. To not think that is true of your portfolio companies is so wild. 

I think the world waking up to that and then actually executing on that is really exciting.

HSFS: What are ways that founders, especially first-time founders, can build relationships and their personal brands?

SW: With building relationships, you’ve almost got to treat it like an arm of your business, and it’s like another part of the job.

Go and have coffee with everyone that is in some way related to startup and venture. Instead of going relatively wide for investors initially, I would try to go quite narrow and build relationships with investors who may or may not be the right investors for your business. But that will help. 

We will say, “You should speak to this person.” What VCs are good at is networking, and our network is usually broad and large, but you need to find people who are in the right stage of their careers. They have time to connect you and are also inclined to do so. And that will change. There are some months when I will happily take multiple calls with female founders and support and coach them. Then, there are other months where I absolutely cannot because I have my own job and other jobs.

Unfortunately, you cannot figure that out with tech. You have to just brute force it. So, brute-forcing network, treat it as part of your job. 

Personal branding is so interesting. It feels like we're at this inflection point. Someone once said to me that if you have a good personal brand on LinkedIn, it's like doing business in easy mode because if you message people, they're more likely to message back. People know about you, people will see you. We've got a session at our summit coming up in October about personal brand for VCs because I also think it’s really important.

For founders, I would say just become an expert in whatever your business is doing and become a thought leader in that space. So then, you’re not even fundraising, but you are known because you’re so active and doing cool research.

I'd like to shout someone out who does this really well. Molly Johnson-Jones, who's the co-founder of Flexa, which is a future-of-work company, is the most knowledgeable person about the future of work, flexible working, and remote working, and she has 74K followers. 

I think just, again, treating that as part of the job. I have a reminder in my calendar to post on LinkedIn. It's part of what I do to increase my personal brand. It really helps me with the business. 

Take it seriously and either do it fully or don't do it at all. I think it is really hard to dip in and out of it. It's either part of your strategy or don't do it.

Some people say, “I don't want to post on LinkedIn.” Then don’t do it. If it's not authentically you, it's actually not going to come across. Think about other ways that you might build your brand. Get to know loads of journalists and be the point person for quotes or go on podcasts.

Lean into what works for you. I'm a massive introvert, which is really mad that I've set up a company that does events and networking. But I find that I prefer being on stage; I don't mind that as much. Then, it makes the networking easier. If people have seen you on stage, then they will come to you. 

I speak to a lot of women, and I'm trying to convince them to speak on stage for the first time at WVC:E, and they're like, “Oh no, I don't want to. I'm nervous. I am not very good at this. I'm an introvert.” I'm like, “This is the introvert dream. Trust me.”

HSFS: Do you have any additional advice for founders or more insights into your perspective on the fundraising market?

SW: I see so many posts, and they're usually from male investors, as top tips for female founders to raise capital. It's like, why not share the top tips for male investors to invest in more female founders?

There's so much we can do to support female founders, especially around education and networking, but I think one of the jobs I want to take away is how we educate male investors to see the opportunity of investing in female founders and not ask all the questions that we've seen. They ask a lot more downside risk questions and upside risk questions. 

The way that we're attacking it is that we're just trying to get more women at the top, but I think that we also need to put some onus on investors here because nothing's going to change if that doesn't change. 

Conclusion

The venture capital world still has a lot of progress to make in terms of diversity and inclusion. However, Winwood and her colleagues are striving to shift the status quo, allowing a more diverse group of people to not only receive VC funding for their startups but also to be the ones giving out these funds. By improving diversity across the board, from investors to VC-backed startups, companies are better set for success.

While changes still need to happen within VC firms, there are ways for underrepresented founders to take control and seek out funding for their startups, such as building their personal brands and connecting with investors, even if they aren’t funding your startup. Each connection can help get startups closer to their funding goals. 

In the meantime, Winwood and other industry pros will continue their efforts to move the needle in VC for more inclusivity.