Funding Women-led startups & Investing in Women Hedge fund managers is profitable
Women tend to transform, they tend to change the terms, they tend to bring innovation and diversity. And it is critically important, because that diversity itself, is conducive to innovation, is conducive to changing the way in which you look at things` Christine Lagarde at the Women`s Forum November 2020.
Innovation happens at scale, after a narrative change at scale. One recent and tangible example of this is around ESG investing. And both Lagarde, Greta, and Larry Fink are three advocates and leaders that have moved the needle towards making ESG investing the norm.
Female leadership is very different than male leadership. We are still operating in an era in which the male leadership style is the status quo. The female leadership style (this can be adopted of course by men) is still largely underestimated even though there is tangible evidence that it outperforms.
I am hopeful that this underestimated and overperforming power, will work its way and scale much like it happens in nature and not like things work on the battlefield of competition.
In Finance, the narrative around investing more in women founders has not scaled.
Despite the facts & figures showing several favorable metrics for all-female led ventures and mixed ventures, the venture capital world overall is allocating capital mostly to men. There is incremental progress but at its core, the VC world is a small tight network of males that have no incentive to change the way they play the game.
The US and the UK are the worst in terms of dollars invested in all-female or mixed ventures. Whereas Latin America funnels twice the amount than Europe. Silicon Valley and its UK equivalent are entrenched fairly closed and non-transparent ecosystems.
In the US for example, 40% of businesses are owned by women, which is evidence that there are no gatekeepers stopping women from setting up businesses. In 2019, only 20% women-led businesses received VC money. And from the total dollars invested, only 4% went to all-female leaders.
In the UK, the numbers are dreadful. All-female ventures receive 1% of pounds allocated by VCs, 10% go to mixed led teams, and 89% go to all-male founders.
When we look at the number of women-led ventures, then the US and Latam are fairly close.
The Kaufman foundation and other research claim that female-led teams offer 35% higher ROI, 12% higher revenues, and an average time to exit of 6yrs when the industry average is 7.4yrs. The market is recognizing these facts but not at scale.
In 2019, there were 21 unicorns with at least one female founder from the start! This is more than double compared to 2015. But of course, dismal when we look at this as a percentage of the total unicorns. Many say that unicorns have become like rabbits. So, in 2015 there were roughly 140 unicorns whereas in 2019 over 450 unicorns. So, in 2015 women founded unicorns were 6.5% of the total and in 2019 this has dropped to 4.5%.
The facts are there, and the narrative isn’t. Change can come from a couple of different directions.
It can come from more women investors both in the Angel investor community and in the VC world. Currently, roughly 10% of US venture capital partners are women. The angel investor percentage is better, 22%, and also encouraging as in crisis angel investments grow.
The ripple effect of a doubling (for example) of women as VC partners (to 20%) is largely because women tend to invest three times more in women-led teams.
Change can also come from a female-led disruption of VC funding mechanisms. There the hope (too early of course) is tokenization and decentralization of venture funding.
The startup world is not the only area in finance that biases exist despite hardcore evidence of the added value of women. Another area is the investment world and specifically, the hedge fund industry. Morningstar reports that the percentage of women hedge fund managers has not changed since 2000! It remains at 14%. One of the reasons is the discouraging `sponsorship` in the market.
On a positive note, Aberdeen Standard Investments, one of Europe’s biggest asset managers, has just announced that they will be explicitly targeting female hedge fund managers, as they clearly managed better during the abrupt March drawdown. HFR’s Women Access index was up 6.9% by the end of October compared to a 1.1% rise in the broader HFRI 500 Fund Weighted Composite index.