ESG Policy Auxxo Female Catalyst Fund

15.03.2023

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 as next steps we are creating a Code of Conduct and setting 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 December 2022, approximately 24% 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). 

Our exclusions list includes:

  • Production of or activities related to exploitative forms of forced/child labor.
  • Illegal activities or activities, which violate international conventions or agreements. 
  • Production and distribution of racist or anti-democratic media.
  • Economic activity related to ammunition and weapons, their major components, military/police equipment, or penitentiary infrastructure. This limitation does not apply to the extent that these activities are part or annex of an express policy of the European Union. 
  • Gambling, casinos, including Internet gambling and online casinos.
  • Production and trade of distilled alcoholic beverages.
  • Production and trade of tobacco.
  • Cross-border trade in waste and waste products unless in accordance with the Basel Convention and underlying national and EU legislation.
  • Human cloning.
  • Production and trade of wildlife or wildlife products regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CETES).

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. In our decision-making process we use an ESG checklist. 

The checklist is 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.

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 first version of The Auxxo Female Catalyst Fund’s ESG Policy. It was accepted at the beginning of March 2023 and published on March 15th, 2023. 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