Illustration: Lazaro Gamio/Axios

Cleo Capital, led by entrepreneur Sarah Kunst, raised $3.5 million for a debut fund that will invest in female entrepreneurs who act as scouts.

Why it matters: "There's a lot of response about diversity — gender and race — and there's a lot of conferences and panels and dinners celebrating or highlighting women in tech, but there hasn't been a change in where the capital goes," Kunst tells Axios.

Changing the ratio: Along with an abysmally small number of female decision-makers at VC firms (less than 10%), "most scout programs inside of existing firms are overwhelmingly male," says Kunst, who was a scout for Sequoia Capital in 2018.

  • Sequoia tells Axios that more than a third of its current class are women. Spearhead, a joint program run by AngelList and VC firm Accomplice, had 4 women out of its first class of 19.
  • "A lot of the scouts [Kunst] had in place were already people we really respected. ... It appeals to us because of the quality of founders," says Lightspeed Venture Partners' Nicole Quinn, whose firm invested in Cleo.

Along with a persistent wage gap, women also own just 9% of all startup equity, despite making up 33% of founders and employees.

  • "Things won't really change for women unless women become more liquid, and all of our money is tied in our companies," says Rachel Tipograph, founder of MikMak and a Cleo Capital scout. She's already an angel investor but says that scout money makes it possible for her to make bigger investments.
  • And because scouts get to keep much of the upside of the deals they make, Cleo Capital (and all other female scouts) could earn significant new cash if it proves savvy at picking investments.

Kunst initially aimed to raise $10 million, but says that many investors told her they were not backing new funds at the moment or that her fund was too small for their budget.

"The reality is that the bar is sometimes higher for people who try to do things that don't match the patter of what other people are doing," says Bloomberg Beta's Karin Klein, whose fund invested in Cleo.

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