Investments in this strategy aim to increase seed and follow-on financing to women-led businesses, enable a diverse entrepreneurial pipeline, and unlock capital for investments in issues that disproportionately impact women. The below high-level overview and associated metrics pack are intended as a developed market gender lens complement to the Navigating Impact Financial Inclusion theme.
Despite the fact that women control roughly $20 trillion in annual customer spending globally (70–80% of total consumer purchasing), innovation and investment remains decisively in the hands of men. Women-run businesses account for roughly 2% of all venture capital investment (1-3). When it comes to those responsible for allocating capital, just just 13% in the UK and 9% in the US are women (4, 9).
Inequity in innovation and investment leads to weak pipelines for investors to access female entrepreneurs, women-centered products being viewed as a niche market, and women entrepreneurs facing systemic challenges in accessing investment capital. Challenges stem from two main sources:
Investments in this strategy can:
Globally, there is significant gender disparity in investment, innovation, and decision-making in access to financial capital through private debt and equity. There is a reported USD 1.7 trillion shortfall in access to finance for women-owned microenterprises and SMEs (6). Illustrative statistics include:
Women: Greater access to seed and Series A financing can improve the financial outcomes, decision-making authority, and overall quality of life for women business owners and their employees.
Women of Color or of Diverse Backgrounds: In the United States, women of color fair considerably worse than other women, with only 0.2% of venture capital flowing to their companies despite comprising the fastest growing segment of female business owners (10). Removing biases from the traditional venture capital processes and outcomes could have significant positive impact for women from diverse backgrounds.
This strategy can be applied to all geographies. Venture capital is currently concentrated in just a handful of cities, primarily in the US, Asia, and Europe. However, strategies that remove bias from traditional financing processes and unlock capital for traditionally underserved populations, such as women, can open opportunities for regions and other underserved markets, such as peri-urban, rural, or emerging markets. Asia is the second most active region for venture financing by women-led firms. However, only 76 deals were made in Asia by women-led venture firms from January to October 2017 (12). Within Latin America, the financing gap (the financing needed that is not currently available for women-owned microbusinesses and SMEs) is estimated at approximately USD 98 billion (6).
Actively employing a financial inclusion strategy by increasing access to seed and Series A financing for women-led or women-centered businesses can lead to improved financial and social returns.
As women are more likely to enter commercial markets to create wealth and social change, investing in female-led businesses is both financially and socially prudent (13). Existing research into this area suggests that women are more likely than male counterparts to be motivated by social impact or build a social impact business (14). Therefore, increasing seed and Series A financing for women-led or focused businesses has the potential to address broader social inequality issues by enabling marginalized or underserved groups access to products and services.
While it is important to note that not all female investors will want to back female founders, there is evidence that female investment partners are twice as likely to invest in companies with women on the management team, and three times as likely to invest in female CEOs (10). Getting more women in venture capital has a positive effect for women-led companies and women-focused products and services.
Globally, there is an estimated USD 1.7 trillion shortfall in access to finance for women-owned microenterprises and SMEs. By helping to close this gap, investments in this strategy could have wide-ranging impact not only on the women founders and business owners invested in, but for potential employees, families of the founders and employees, and the communities in which the investees are located. In addition, millions of consumers could benefit from greater investment in underserved markets that are not currently receiving adequate venture capital.
In the US, female-owned businesses generate USD 1.8 trillion revenue (15). Unlocking capital for investments in issues that disproportionately impact women and other diverse groups can potentially create new market opportunities for products which have traditionally been excluded, considered unmarketable, or viewed as niche markets. For example:
External Risk: Unconscious biases within traditional venture capital ecosystems and institutions, in addition to discriminatory laws against women in some parts of the world, may limit the effectiveness of the strategy. In the case of the former, organizations can mitigate this risk by investing resources in understanding how bias impacts investment decision-making, and identifying new ways to analyze risk and opportunities across their portfolio through internal audits, policies, and trainings that enable financial inclusion (20). In the case of the latter, organizations can advocate for more gender equitable laws through their engagements with governments and the private sector by joining collaborative efforts and by making public statements in favor of gender equality. Furthermore, they can consider creative partnerships or tailored terms of investments that can increase a woman’s control or ownership of an investment despite discriminatory laws.
Execution Risk: Lack of attention to whether the type, terms and conditions of capital are appropriate for the investee’s needs, preferences, and context could result in detrimental impact, such as over-indebtedness, inability to weather slowed growth or unexpected business interruptions, or diluted ownership (21). For guidance on applying a gender lens to the investment process, see Criterion Institute’s Designing a Gender Lens Investing Action Plan.
Failure to appropriately address these risks could limit the positive impact of the strategy or create negative consequences. For instance, providing debt capital to an investee with a stable but slow-growth business at a high interest rate and with too short-term of a payback schedule could hinder operations and put the investee out of business, costing jobs and creating other unintended consequences.
Have an illustrative investment we should consider? Let us know!
Michael J. Silverstein and Kate Sayre, The Female Economy, Harvard Business Review, September 2009. https://hbr.org/2009/09/the-female-economy
Michelle King, Want a Piece of the $18 Trillion Female Economy? Start with Gender Bias, Forbes, May 24, 2017. https://www.forbes.com/sites/michelleking/2017/05/24/want-a-piece-of-the-18-trillion-dollar-female-economy-start-with-gender-bias/#170f47c86123
Dana Olsen, Do Female Founders Get Better Results? Here’s What Happened When I Tried to Find Out, PitchBook, January 23, 2018. https://pitchbook.com/news/articles/do-female-founders-get-better-results-heres-what-happened-when-i-tried-to-find-out
Dan Primack, Pro Rata: Top of the Morning, Axios. https://www.axios.com/newsletters/axios-pro-rata-30ed724c-d7e7-4b55-9d69-40752b60aa2e.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosprorata&stream=top-stories
Katie Abouzahr, Frances Brooks Taplett , Matt Krentz , and John Harthorne, Why Women Owned Startups Are a Better Bet, Boston Consulting Group, June 6, 2018. https://www.bcg.com/en-us/publications/2018/why-women-owned-startups-are-better-bet.aspx
IDB Invest and OPIC launch first gender lens investment fund for Latin America and the Caribbean, IDB Invest, October 2, 2018. https://www.idbinvest.org/en/news-media/idb-invest-and-opic-launch-first-gender-lens-investment-fund-latin-america-and-caribbean
Valentina Zarya, Female Founders Got 2% of Venture Capital Dollars in 2017, Fortune, January 31, 2018. http://fortune.com/2018/01/31/female-founders-venture-capital-2017/
The State of European Tech 2018. https://2018.stateofeuropeantech.com/chapter/diversity-inclusion/article/were-all-part-problem/
Diversity VC, Women in UK Venture Capital 2017. https://www.bvca.co.uk/Portals/0/Documents/Research/2017%20Reports/Women-in-UK-Venture-Capital-2017.pdf
Wendy DuBow and Allison-Scott Pruitt, The Comprehensive Case for Investing More VC Money in Women-led Startups, Harvard Business Review, September 18, 2017. https://hbr.org/2017/09/the-comprehensive-case-for-investing-more-vc-money-in-women-led-startups
Gené Teare, In 2017, Only 17% Startups Have a Female Founder, TechCrunch, April 19, 2017. https://techcrunch.com/2017/04/19/in-2017-only-17-of-startups-have-a-female-founder/
Women in Venture Capital 2017, Preqin, December 2017. http://docs.preqin.com/reports/Preqin-Women-in-Venture-Capital-December-2017.pdf
Barbara Orser and Catherine Elliott, The Feminist Entrepreneur, Standord University Press blog, April 28, 2015. https://stanfordpress.typepad.com/blog/2015/04/the-feminist-entrepreneur.html
Danielle Kayembe, The Silent Rise of the Female-Driven Economy, Refinery29, December 20, 2017. http://www.refinery29.uk/2017/12/185994/rise-of-female-driven-economy-feminist-economics
WBENC, Behind the Numbers: The State of Women-Owned Businesses in 2018, October 10, 2018. https://www.wbenc.org/blog-posts/2018/10/10/behind-the-numbers-the-state-of-women-owned-businesses-in-2018
Bérénice Magistretti, The Rise of Femtech: Women, Technology and Trump, Venture Beat, February 2, 2017. https://venturebeat.com/2017/02/05/the-rise-of-femtech-women-technology-and-trump/
Frost & Sullivan, Femtech—Time for a Digital Revolution in the Women’s Health Market, Frost Perspectives, January 31, 2018. https://ww2.frost.com/frost-perspectives/femtechtime-digital-revolution-womens-health-market/
Mariella Moon, Mobile Wallets More Popular in Sub-Saharan Africa Than Anywhere Else, Engadget, April 16, 2015. https://www.engadget.com/2015/04/16/mobile-wallet-sub-saharan-africa/
Unlocking Socio-Economic Opportunities for Rural Women Through Mobile Money, Obopay blog, July 1, 2018. https://www.obopay.com/blog/unlocking-socio-economic-opportunities-for-rural-women-through-mobile-money/
Criterion Institute, Designing a Gender Lens Investing Action Plan. https://criterioninstitute.org/resources/gender-lens-investing-tool-designing-an-action-plan
Tara Health Foundation, Portfolio. https://tarahealthfoundation.org/portfolio/
This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.
This quantitative study examines the funding behavior among men and women business founders, and how this is associated with early growth of newly founded businesses. While women are found to grow their businesses less during the first nineteen months after registration, the gender difference disappear when controlling for the amount of financial capital invested in their new businesses. This finding indicates that the higher amount of financial capital men procure is one important reason why men-led ventures grow more than women-led ventures. There seems to be a funding gap for women restricting the growth of women’s new businesses.
This study conducts a comprehensive test on a large Swedish sample of 4,200 entrepreneurs (405 females) with 1 to 20 employees in all sectors of the economy. In an extensive multivariate regression with a large number of controls, it turns out that female underperformance disappears for three out of four performance variables, including (i) profitability, (ii) employment and (iii) orders increased in the previous years.
This paper presents an exploratory longitudinal study of a random sample of Canadian nascent entrepreneurs. The authors examined the differences between male and female personal characteristics, gestational activities and the ability to achieve an operational business. There appear to be few differences between male and female nascent entrepreneurs e.g. university degree major and growth expectations. However, there is no significant difference in the likelihood between men and women of achieving an operating business.
Using the World Bank Enterprise Survey data, the authors engaged in statistical analysis of the performance gaps between male- and female-owned companies in three regions—Eastern Europe and Central Asia (ECA), Latin America (LA), and Sub-Saharan Africa (SSA). Amongst the findings are significant gender gaps between male- and female-owned companies in terms of firm size, but much smaller gaps in terms of firm efficiency and growth. While female entrepreneurs receive smaller loans than their male counterparts, the returns from each dollar they receive is no lower in terms of overall sales revenue.
Motivated by social constructionism and feminist theory, the authors argued that different geographic and industrial contexts might provide differing opportunities and constraints for female business owners. They tested these hypotheses empirically by analyzing one million businesses in Texas. It is found that female-owned businesses out-survived male-owned businesses in a wide variety of industries. In terms of geographic area, female-owned businesses consistently out-survived male-owned businesses in the largest cities.
This quantitative study about Tunisian female entrepreneurs' participation in training programs reveal that two forms of social capital, marital status and wasta, are related to training center directors’ ratings of women entrepreneurs’ performance, suggesting that social capital is a critical asset for Muslim women entrepreneurs. The authors recommend that training organizations supporting entrepreneurs directly assist women in the development of social capital and acknowledge, rather than ignore, that nepotism and wasta are linked to entrepreneurial success in some cultures.
Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.
Measures the percentage of investees within an investment portfolio that have at least one female founder.
(Investees with one or more female founders) / (Total number of investees)
Organizations should footnote all assumptions made.
This metric should identify the number of companies which have at least one female founder (in addition to male founders), and those that are completely female founded.
This metric identifies the gender balance among founders in an investment portfolio.
Measures the male/female ratio of individuals with investment decision-making power within a fund.
Organizations should footnote any assumptions made.
This metric should consider women and gender and sexual minorities (GSM) across the investment decision making process including associates and partners.
This metric is important to identify who is responsible for the ultimate investment decision-making. With female investment partners twice as likely to invest in companies with women on the management team, and thrice as likely to invest in female CEOs, it is important that companies pay attention to gender at a decision-making level. See The Comprehensive Case for Investing More VC Money in Women-led Startups for further detail.
This metric tracks the type of capital, the terms and conditions of capital, and the amount given across the investment stages by gender of the founder(s).
Organizations should footnote all assumptions made, including stage of investments (for example, Seed, Series A, Series B, etc.) and whether repeated investments were made in the same investee.
Organizations should also collect data on terms and conditions of investments. For instance, debt investments should track interest rates, amortization schedules and duration of the loan. This helps illustrate whether investors are offering flexible capital that is tailored to meet the specific needs of the investee. Organizations seeking additional information on appropriate capital can refer to the GIIN Repository of Alternative Financing Structures for Early Stage Impact Investing.
This metric enables investors to identify any patterns of disparity in investment decision-making by cross-referencing investments by type, ticket size, terms and conditions, investment stage, and the gender of the founder(s). These indicators enable investors to assess whether there are investment or structural barriers that may impact the investment, retention, or success of founders and may impede financial inclusion because of gender bias throughout the process.
Indicates whether an investor possesses a gender-diverse investment committee to ensure an equitable decision-making process.
Organizations should footnote any assumptions made.
The committee should include representation and input from all demographics represented in the organization, ensuring that diverse experiences inform the investment decision-making process. A diverse investment committee enables diverse views and experiences to be included across due diligence and investment decision-making, which could potentially aid in the identification of new products or services to meet unmet needs.
This metric is useful for understanding biases of any one group in investment decision-making.
Percent of companies whose target market is women, gender and sexual minorities (GSM), other marginalized/minority groups, rural groups, or those living in emerging markets.
Presence of a blind due diligence process in venture equity or debt firms.
Measurement should include investments in emerging markets and products designed for specific markets (for example, women, GSM groups, rural populations) rather than a universal design.
This metric enables investors to identify untapped and underserved markets with particular reference to diverse groups whose needs are currently unmet. Its emphasis is on shifting these products and services from a niche market to a market opportunity worthy of investment.
Indicates whether organization has a gender-blind due diligence process.
Organizations should footnote any assumptions made.
Significant research suggests unconscious bias impacts how female and male founders are asked questions during the pitching process. Women in particular are more likely to be asked risk related questions, and male founders success related questions. Investors should consider such mediums as a standardized questions guide during pitching and a gender-blind review of pitch decks. For guidance on due diligence and pitch processes that lead to greater funding to women-led businesses, organizations can refer to SheEO’s How SheEO Is Different.
This metric addresses unconscious gender bias in the due diligence process and ensures that all founders are treated the same regardless of gender or other forms of social categorization.
Refers to the ratio of senior level executives and c-suite who are male, female or identify as a GSM.
(Female Senior-Level Executives) / (All Senior-Level Executives)
Organizations should footnote any assumptions made.
Considerations should also be made for other forms of social categorization to ensure investment diversity including: race, class, sexual orientation, religion, disability, etc.
This metric helps identify whether women play a central role in business decision-making.
Percentage of investees in which the highest decision-making position (Chief Executive Officer, Executive Director, etc.) is a woman.
Organizations should footnote all assumptions made.
Considerations should also be made for other forms of social categorization to ensure investment diversity including: race, class, sexual orientation, religion, disability, etc. Also include what kinds of investment decisions are made by investors by gender.
This metric measures whether women or other gender and sexual minorities (GSM) are the ultimate decision-making power in a company.
Net number of new full-time equivalent employees working for enterprises financed or supported by the organization between the beginning and end of the reporting period.
Jobs in Directly Supported/Financed Enterprises: Total (PI4874)−Jobs Maintained at Directly Supported/Financed Enterprises: Total (PI5691)
Organizations should footnote all assumptions used. Organizations that report data using more than one reporting period should make very apparent which reporting period they are using for this metric. See usage guidance for further information.
This metric is intended to capture the jobs created at supported organizations throughout the reporting period. Organizations seeking deeper gender impact can disaggregate the data by gender to measure how many jobs were created for women.
An important impact of venture capital is the creation of employment opportunities that can be generated by successful investees. This metric captures that impact.
Amount and stage (Series A, Series B, etc.) of follow-on funding received by an organization's investees in the reporting period.
Organizations should footnote all assumptions.
In addition to the stage and amount of funding, organizations should note the investors, type of funding and any available terms and conditions of funding when possible.
This metrics helps determine if investees were able to receive follow-on funding after an initial investment and can be a good proxy for the sustained success and growth of an investee.
Number of unique client individuals, disaggregated by gender, who were served by the organization and provided access, during the reporting period, to products/services they were unable to access prior to the reporting period.
Organizations should footnote all assumptions used. See usage guidance for further information.
This metric is intended to capture the number of unique clients who were recipients of the organization's products or services during the reporting period, who were unable to access these products and services from organizations in periods prior.
This metric is intended to track how many investees were provided access to capital for the first time as a result of this investment.