ESG Policy Auxxo Female Catalyst Fund

01.09.2024

Auxxo’s mission

The Auxxo Female Catalyst Fund is a sector agnostic pre-seed and seed stage investors that backs female (co-)founded startups in Europe. The fund was established to advance the role of women(1) in the startup and VC industry. Women are vastly underrepresented as founders, investors and in management teams. Far fewer women step into these roles due to a variety of reasons and many of those who do face unfair treatment(2). And while the lack of funding going to female founders has been highlighted and well documented in the past years, mixed teams still capture 12% and all female teams only 1% of all funding in Europe(3). This inequality has impacts not only on the individual level but also on societal level as studies show more diverse teams perform better, creating more economic wellbeing and fostering innovation(4).  

Our mission is to advance the ownership, participation, and fair treatment of women in startups by investing only in early-stage startup teams with at least one female founder holding a minimum of 20% of the founder shares. As companies with at least one female founder hire 2,5 times more women than all male founder teams(5), on top of our direct impact of increased female ownership, our approach indirectly increases the diversity of startup employment

We recognize that the lack of diversity in the startup and VC field go beyond gender. Race, age, disability, educational background and other socioeconomic factors all contribute to the opportunities individuals have. We have chosen as our focus the inequality between genders but promote diversity and inclusion of all underrepresented groups.

 

ESG at Auxxo

ESG (Environmental, Social and Governance) is not a fully cemented term yet and many definitions and understandings still exist. We at the Auxxo Female Catalyst Fund understand the term similarly to VentureESG (2022)(6), as a “set of principles guiding a firm’s or a fund’s management, processes, and practices”. Matters that can be considered within the ESG framework include environmental aspects such as energy use, emissions and waste; social aspects like human rights along the supply chain and diversity and inclusion in hiring and decision-making, and governance aspects such as board structure. Doing ESG for us means operating with integrity, taking into account all stakeholders, and practicing business in a sustainable manner. 

Sustainability is understood in accordance with the Brundtland Report’s(7) definition of sustainable development as meeting the needs of the present generation without compromising the future generations ability to meet theirs. The United Nations 17 Sustainable Development Goals (SDGs)(8) are also based on this idea of sustainable development and are probably the most commonly used framework. At Auxxo Female Catalyst Fund our biggest impact can be seen in alignment with SDG 3: Good Health and Wellbeing and SDG 5: Gender Equality. Advancing these goals are embedded in our mission, our culture and our ways of working and connecting to others. Nevertheless, we think that it is important to aim to act responsibly in regards to all 17 goals. 

We have two main reasons for integrating ESG into our processes. Firstly, since every economic activity needs societal and environmental resources, at minimum in the form of employment and energy, it has an impact on the surrounding society and environment. We believe it’s every company’s responsibility to conduct business in a manner that maximizes positive impacts and minimizes the negative ones. Secondly, ESG is a beneficial, or even crucial, framework for evaluating companies potential risks and opportunities. ESG implies a multistakeholder approach and a long-term view, which are key for building lasting value.

 

Purpose and scope of this ESG Policy

Through this ESG Policy we want to communicate our values and our understanding of responsible investing and make a commitment to sustainable business practices to our current and future team members as well as to our stakeholders. This document covers the team at Auxxo Female Catalyst Fund as well as our past and future investments and is to be used by our team members to guide decision-making in all our operations.

Responsibilities

The responsibility for driving the ESG efforts forward lies with an appointed team member. This
person is dedicated to constantly improving Auxxo’s ESG operations within the team and the portfolio.
However, a designated Partner level person is accountable for the funds commitment, enforcement
and implementation of the decided ESG measures. The whole Partnership and, where appropriate,
the larger Auxxo team is consulted for ESG related decisions and the whole team is informed about
any decisions made. Each team member carries responsibility for adhering to the set ESG standards
and practices.

 

Policies, frameworks and practices across fund/ investment lifecycle

At Auxxo Female Catalyst Fund we think about ESG as divided into four parts: 1) fund level operations, 2) investments, and 3) portfolio operations, and 4) ESG engagement, although the latter can also be seen as embedded in the previous three.

In fund level operations we include considerations such as our own investor base, the culture and ways of working within our team. ESG in investing includes our investment strategy, deal sourcing, investment decisions, follow on investments and exits; how these processes are set up and how the decisions are made. Portfolio management includes the ESG support we offer to our portfolio companies, and the information requests and goal setting that we engage with our portfolio. ESG engagement is a reflection of the attitudes and ways of working we foster within our team, as well as when interacting with LPs, portfolio companies, or anyone we meet and work with. As a separate category, it refers to the initiatives we commit to in order to advance ESG in venture capital.

 

Fund level operations

Investor base

Auxxo raises capital for the funds it manages from institutional investors and individuals. Over 50% of Auxxo’s Limited Partners are women, mixed gender couples or have a senior female team member who drove the investment decision. This is important for us because we want to increase female participation in venture capital and startups on all levels, starting with our limited partners.

Culture and ways of working

The Auxxo Female Catalyst Fund team is relatively small. What is most important to us is that all of our team members can bring their whole self to work, share their personal life, and feel appreciated not only as a colleague but as a person. We foster a culture where our key values are equality, trust, vulnerability, abundance, and caring.

To support the work of people regardless of their current life situation and to offer working opportunities to people from different background we have:

  • fully flexible hours
  • fully remote working 
  • part-time working opportunity

Our office is equipped with ergonomic equipment, such as working chairs and standing workstations. We have a meditation room to support our team members’ wellbeing. We organize regular team events that foster personal health. Our office as well as our culture are family and pet friendly. 

To make sure that everyone within our team and working with our team feels fairly and equally treated, we created a Code of Conduct and set up a whistleblowing system. 

From an environmental perspective, we aim to make sustainable choices in our everyday decisions by creating as little waste as possible in our events, by going paperless and by saving office energy where possible and traveling smart. We do not travel much and when we do we typically opt for train over flying and always choose economy when flying is unavoidable. On our agenda next is a responsible travel policy to make this habit more pronounced and calculating our emissions to understand where we still have room for improvement.

Investments

Investment strategy

Ingrained in Auxxo’s investment strategy is the promotion of women’s participation and ownership in startups and venture capital. A process of considering gender in both pre-investment activities and post-investment monitoring is called gender-lens investing (GIIN)(9). It can also be seen as a positive screening strategy(10) as we target companies with above average diversity in their ownership and management structure.

By September 2024, approximately 23% of our portfolio companies had all-female founding teams and the rest were mixed teams. In total 54% of Auxxo Female Catalyst fund founders are women. 

In addition, we have a negative screening list, excluding sectors and business practices that we deem as socially and/or environmentally harmful. Our approach is informed by commonly accepted exclusion frameworks and draws from exclusion lists of the European Investment Bank(11), International Finance Corporation(12), KfW Bank(13), and the guidelines of the European Investment Fund(14). 

As written in our LPA (15): We do not invest in companies whose business activity consists of:
(a) Performing research and innovation activities considered as illegal according to the applicable legislation in the country of the Portfolio Company;

(b) Any illegal economic activity (i.e., any production, trade or other activity, which is illegal under the laws or regulations applicable to the Fund or the relevant Portfolio Company or entity, including without limitation, human cloning for reproduction purposes);

(c) The production of, and trade in, tobacco, distilled alcoholic beverages, other non-alcoholic recreational drugs and related products;

(d) The production of or trade in weapons and ammunition of any kind or the financing thereof, it being understood that this restriction does not apply to the extent such activities are part of or accessory to explicit European Union policies;

(e) Casinos and equivalent enterprises;

(f) Oil and gas or metals and mining exploration, extraction or operations;

(g) Retail banking;

(h) Pornography; The research, development or technical applications relating to electronic data programs or solutions, which (i) aim specifically at (x) supporting any activity referred to under lit. (a) through (g) above, (y) internet gambling and online casinos, or (z) pornography; or (ii) are intended to enable to illegally (i) enter into electronic data networks; or (ii) download electronic data;

(i) Fossil fuel-based energy production and related activities, as follows: (i) Coal mining, processing, transport and storage; (ii) Oil exploration and production, refining, transport, distribution and storage; (iii) Natural gas exploration and production, liquefaction, regasification, transport, distribution and storage; (iv) Electric power generation exceeding the Emissions Performance Standard (i.e., 250 grams of CO2e per kWh of electricity), applicable to fossil fuel fired power and cogeneration plants, geothermal and hydropower plants with large reservoirs.

(j) energy-intensive and/or high CO2-emitting industries, as follows: (i) manufacture of other inorganic basic chemicals (NACE 20.13); (ii) manufacture of other organic basic chemicals (NACE 20.14); (iii) manufacture of fertilizers and nitrogen compounds (NACE 20.15); (iv) manufacture of plastics in primary forms (NACE 20.16); (v) manufacture of cement (NACE 23.51); (vi) manufacture of basic iron and steel and of ferro-alloys (NACE 24.10); (vii) manufacture of tubes, pipes, hollow profiles and related fittings, of steel (NACE 24.20); (viii) manufacture of other products of first processing of steel (NACE 24.30, incl. 24.31-24.34); (ix) aluminum production (NACE 24.42); (x) manufacture of conventionally-fueled aircraft and related machinery (sub-activity of NACE 30.30); (xi) conventionally-fueled air transport and airports and service activities incidental to conventionally-fueled air transportation (sub-activities of NACE 51.10, 51.21 and 52.23). Notwithstanding the above, investments in the sectors mentioned in lit. (j) above shall be allowed if the Managing Limited Partner confirms that the investment either (a) qualifies as environmentally sustainable investments as defined in the EU Taxonomy for Sustainable Activities (Regulation (EU) No. 2020/852, as amended from time to time) as supplemented by the technical criteria established under the EU Taxonomy Delegated Acts (Commission delegated Regulations (EU) supplementing Regulation (EU) No. 2020/852 or upcoming Taxonomy Delegated Acts, as amended from time to time, respectively), or (b) is eligible under the EIF’s Climate Action & Environmental Sustainability (“CA&ES”) objectives in accordance with the latest criteria as published in the EIF’s website from time to time. In addition, when providing support to the financing of the research, development or technical applications relating to (a) human cloning for research or therapeutic purposes or (b) genetically modified organisms (“GMOs”), the Managing Limited Partner shall ensure the appropriate control of legal, regulatory and ethical issues linked to such human cloning for research or therapeutic purposes and/or GMOs

Deal sourcing

One of Auxxo’s main ESG pillars is offering underrepresented founders access to venture capital. Our main focus is on female founders and we have founded or are tightly connected to, or support all of the of the relevant initiatives Europe-wide or within Germany in order to reach as many existing and potential female founders as possible and establish the Auxxo brand. These include Evangelistas (founded), European Women in VC (founding member), Encourage Ventures (founding member), Female Business Angel Podcast and Female Founders Podcast (podcast hosts), Female Founders (speakers), Grace (content contributors for accelerators and digital product), and many more. 

In addition, we actively source deals from a variety of sources to provide better access to founders from all kinds of backgrounds and have an open application form on our website to counteract the need for “warm introductions”.

Investment decisions

We are generally excited about companies that create solutions to social and environmental issues or
have a social or environmental component as a part of their solution. We, however, are sector
agnostic and invest in companies with at least one female (co-)founder (with access to at least 20% of
the founder shares) that solve relevant issues in a scalable manner. Our decision-making process in
terms of ESG encompasses the following:

  • We check if the company is in the scope of the prohibited sectors from LPA 16.1. (see above)
  • We complete an ESG Questionnaire: The first part of the questionnaire has questions with
    yes and no answers including a comment box, including questions such as “do you have an
    ESG policy or Code of Conduct in place?”. The second part encompasses the
    industry-specific questions, which we add based on the specific company we are diligencing.
  • In the Deal Sheet,we then include the ESG Questionnaire and a summary of all ESG-related
    discussions we had with the founders.

This process was created to remind us to think about all aspects of the investment, including its
positive and negative impact and potentially risks the investment might entail. These factors are taken
into account when making the investment decision. ESG related concerns that arise from the due
diligence process are brought to the investment committee’s attention by the person leading the
investment when introducing the potential investment. If our evaluation shows that a company’s
negative impacts exceed its positive one or the investment entails ESG related material or potentially
material risks the Investment committee may decide to forgo from investing or invest conditionally.
When we invest in a company we discuss our concerns about potential material ESG risks with the
founding team.

Follow-on investments

As with initial investments, we evaluate the companies’ ESG risks when making follow on investment decisions. We discuss any ESG concerns with the founders and management team and might waive an investment or make it conditional if any outstanding sustainability issues arise and are not sufficiently dealt with.

Exits

We are a young venture capital company and have not yet had exits. We will develop our exit approach when the matter becomes relevant.

 

Portfolio

Portfolio management

We are a minority owner and a co-investor. We partner with lead investors and aim for a 3-8% share. That means that our leverage as investors when it comes to close strategic support is unfortunately
limited.

To better understand how our role is seen by the founders we collected feedback from the investee companies. The cumulative feedback showed that founders relate to us as their confidants. They can easily share their problems and worries with us and we care for them as people, not just as founders.

We continuously monitor the ownership diversity of our portfolio companies. When it comes to setting,
measuring and monitoring other ESG related goals, we acquire the information through discussions or
questionnaires. We are always ready to help our portfolio companies with their ESG matters.

Our onboarding process encompasses the following:

  • We review our due diligence results on ESG with the founders during the onboarding call.
  • Then, we discuss with the founders of the team which goals we would like them to achieve for
    the following financing round.
  • We discuss our reporting requirements with the teams in terms of ESG.
  • We also check the achievement of these goals for our decision for follow-on funding.

 

Our ongoing input in ESG matters in our portfolio include:

  • If needed, we provide help (mentoring and coaching) to the founders in terms of the goals
    discussed in the onboarding call, as possible.
  • We grant access to the publicly available ESG Guide.

ESG engagement

Industry initiatives

We are part of the VentureESG community, an initiative joined by over 300 VC funds globally driving ESG principles and practices in the VC industry. We want to contribute to this development by embodying the ESG principles set out in this ESG policy. We are working towards an ESG ecosystem by sharing and encouraging practices with other VCs, startups, and LPs.

ESG Policy development 

This is the second version of The Auxxo Female Catalyst Fund’s ESG Policy. It was accepted at the beginning of September 2024. The policy will be revised yearly and on an ongoing basis when changes and improvements to our thinking and practices occur. Our practices are influenced by our increasing ambition toward responsible investing, industry practices, changing legislation as well as stakeholder expectations and engagement.

Sources (in order of reference):

  1. Throughout this document when talking about women we refer to all individuals identifying as women.
  2. Kanze, D., Huang, L., Conley, M. A., & Higgins, E. T. (2018). We ask men to win and women not to lose: Closing the gender gap in startup funding. Academy of Management Journal, 61(2), 586-614.
  3. Atomico, 2022. State of European Tech 22: Europe’s definitive tech report. https://prismic-io.s3.amazonaws.com/atomico-2022/cdfde802-3ed7-4248-b5db-b4b981741f29_Atomico-Report22_ready-to-upload.pdf 
  4. de Bruin, S. & Munoz, M., 2022. European Women in VC: Analyzing the role and importance of women as cheque writers and start-up founders. https://europeanwomeninvc.idcinteractive.net/
  5. West, C., & Sundaramurthy, G. 2019. Startups With At Least 1 Female Founder Hire 2.5x More Women. Available at: https://www.kauffmanfellows.org/journal_posts/female_founders_hire_more_women
  6. VentureESG. (2022). What ESG means for Venture Capital? https://static1.squarespace.com/static/612443c0742cee5ec50528df/t/6227d2e1f9467356249c9d9b/1646777058568/VentureESG+Whitepaper+%231+-+ESG+in+VC+.pdf
  7. Brundtland, G., 1987. Report of the World Commission on Environment and Development: Our Common Future. [online] Available at: http://www.un-documents.net/our-common-future.pdf
  8. United Nations. (2023). The 17 Goals. Available at: https://sdgs.un.org/goals 
  9. GIIN. (2023). Gender lens investing initiative. Available at:  ​​https://thegiin.org/gender-lens-investing-initiative/
  10. Amel-Zadeh, A., & Serafeim, G. (2018). Why and how investors use ESG information: Evidence from a global survey. Financial Analysts Journal, 74(3), 87–103. https://doi.org/10.2469/faj.v74.n3.2
  11. European Investment Bank. (2022). EIB eligibility, excluded activities and excluded sectors list. Available at: https://www.eib.org/attachments/publications/eib_eligibility_excluded_activities_en.pdf
  12. International Finance Corporation. (2007). IFC Exclusion List. Available at: https://www.ifc.org/wps/wcm/connect/28a1d656-dfec-4295-8bf9-a9be7e45549a/IFC%2BExclusion%2BList.pdf?MOD=AJPERES&CVID=kpIOlYT
  13. KfW. (2019). Exclusion List of KfW Group. Available at: https://www.kfw.de/PDF/Download-Center/Konzernthemen/Nachhaltigkeit/Ausschlussliste_EN.pdf
  14. European Investment Fund. (2010). Guidelines on the EIF Restricted Sectors. Available at: https://www.eif.org/attachments/publications/about/2010_Guidelines_on_restricted_sectors.pdf
  15. Limited Partnership Agreement Auxxo Female Catalyst Fund II GmbH & Co. KG