The Role of Inclusion in Venture Capital

Wednesday, 06 November 2019

 

A few weeks ago I attended a two-day national conference that invited some of the most prominent women in leadership, business and economic empowerment in both the private and public sector. The line up included the likes of Economic Advisor to the Republic of South Africa, Trudi Makhaya, World Champion and Human Rights Activist Caster Semenya and UCT’s incoming chancellor Dr Precious Moloi-Motsepe. In bringing together these women under the theme of empowering an inclusive and empowered economy, the role of investing in women owned and led businesses quickly became an emphatic theme. And in this editorial, we’re going to explore not only the role of inclusion in Venture Capital (VC), but the consequences of innovation and discrimination that has lead to the future of alternative capital.

VENTURE CAPITALISTS ARE DEVALUING THE DATA

It is no secret that the more diverse your team is, the more likely that your business is to thrive, and moreover, when that diversity is lead by women. In a study conducted by Mass Challenge and the Boston Consulting Group entitled “Why Women-Owned Startups Are a Better Bet”, over 350 startups were interviewed and assessed to determine which enterprises were not only more risk averse, but who yielded better financial returns. The results determined that businesses founded by women deliver higher revenue (at that, more than two times as much per dollar invested) than those founded by men. To add to this, the study also provided insight of how much more VCs could’ve made (an additional $85 million over five years) had they invested more money equally into both women and men-founded startups. This is a global phenomena, not only unique to the United States. The growing equality parity in both entrepreneurship and venture capital translates to men being more than 92% of the Top 100 venture capital firms and as an impact investment correlation, female-founded businesses are only receiving 2% of total investments by these VCs. This underpins the essence of what we’ll unpack soon, of how the VC mind works, and later why individuals (both men and women) and organisations have to deal with the consequences of the VCs decisions to devalue and disregard the data.

But first, let’s bring the ball back to the continent for a moment, and frame not only the consistency of the return on investment statistics, but also the challenges that female entrepreneurs face in an attempt to acquire or raise capital.

According to the MasterCard Index of Women Entrepreneurs 2017, sub-Saharan Africa has the world’s highest growing rate of women-owned and led businesses at 27%, with Uganda (34.8%) and Botswana (34.6%) leading the pack globally. As great and impressive as these statistics are, what compliments this ideal is that while on the surface more women are entering and playing the field, the staying power doesn’t read quite well. The continental region also lists it as the community that has the most women-owned startups shutting down due to little for opportunity for growth and lack of access to capital and resources.

In 2016, Venture Capital for Africa (VC4A) disclosed in their ‘VC4A Venture Finance in Africa' report, which captured the performance of early stage, high impact and growth enterprises from Africa at their crucial stage of early stage investor activity. Some of the data that is based on data collected from 1866 ventures from 41 African countries and 111 Africa-focused investors from 39 countries around the world unveiled included that only 9% of startups have women leaders, and that there is a direct correlation to the success rate of the venture based on the gender balance of the entity.

So why, as revealed in the African Development Bank’s inaugural Africa Investment Forum in 2018 hosted in Johannesburg, South Africa, do women entrepreneurs experience a significant funding gap of US$42 billion annually even though the numbers, time and time again support that they are better yielders of seeded capital?

A thought leadership piece in the World Bank blog shared by Makhtar Diop, the World Bank’s former Vice President for the Africa Region and now Vice President for Infrastructure, may help us in shedding some perspective.

BETTING ON THE HORSE, NOT THE STATISTICS

In his opening remarks, “Walk around a major city in Sub-Saharan Africa and you will quickly realize that women are a highly visible part of the economy, selling all manner of products and services. In some ways, women are powering the economies of the continent to a greater degree than anywhere else in the world; Sub-Saharan Africa is the only region where women make up the majority of self-employed individuals.” Diop affirms what the many studies conducted and reports released say about not only growing but visible rate of entrepreneurial activity by women on the continent. He then textures this foundational introduction with a much more granular approach in partially answering why this is the case of stumbling growth in women-owned ventures.

“What this fact conceals, however, is that on average women-owned firms have fewer employees, and lower revenues, profits, and productivity. In many cases, women’s businesses contribute little beyond basic subsistence. This limits the potential of women entrepreneurs and hinders economic growth and poverty reduction in Africa.” he continues.

Is he incorrect in his statement? No. However, two ideas that I do want us all to be cognisant of which one he further explains in the article, is that the patriarchal systems which are still in place for African women across the border of the continent. Women do not, and lack the access to the collateral that is required to enable them to access the credit capital, like land and property, these policies and framework are things that need to change so that women can start or develop their businesses.

The other big elephant in the inclusion conversation of venture capital that is widening the investment gap, is that of not only who carries the capital, but why and how that capital distribution always ends up circulating amongst the same racial and gender recipients, call it intentional super inclusive circular and shared value economies of and that scale. In as much as VCs look at outliers and the business and investment cases of startups, it is no secret that they also bet on horses that mirror them. Men (whom we unpacked earlier comprise of 92% of the Top 100 VC firms) are much more likely to invest in men-owned businesses than female ones, and according to a study led by Babson College's Entrepreneurship chair Dr. Candida Brush, it found that startups lead and managed by all-male teams were “four times more likely to receive funding than companies with even one woman leader.”, even with the shocking discovery that gender diversity at the top improves a startup's performance.

If VCs are such risk takers, why not take the biggest risk of them all, women?

THE INNOVATION CONSEQUENCES OF EXCLUSION OF ACCESS TO CAPITAL

It’s happening, too slowly but surely. This gender investment gap has actualised innovative solutions and some, even going back to the basics of group economics to ensure that more entities owned by women are funded and grow to the scale of potential that they truly deserve. Let’s unpack some of these solutions:

·             Using metrics like partnerships, capital investments, total number of companies invested in and the social and financial return on investment, Billion Dollar Fund for Women (TBDF) is committed to ensuring that its holding venture companies to investing in more women-founded companies. Implementing a self-funded, non-profit model, TBDF is a global consortium of venture funds that have committed to date (November 2018) $650 million to tackle the gender investment gap by pledging to increase their investments capital pools to women-owned companies, globally. The lobbyist approach has garnered some success stories like Rethink Impact, with continued increased investment in businesses founded by women.

·             Group economics is an ancient economic practice that’s now positioned itself as one of the most pivotal ways in which to raise capital, for pre-seed and early stage investment businesses. Entities like The People’s Fund, UpriseAfrica, iFundWomen and Portfolia are some of the companies who are doing exciting things in the space of impact investing and creating not only diversity of opportunities for minorities, but also enabling entrepreneurs to tap into capital that they wouldn’t have otherwise, had the access to.

·             The rise of the gender gap also gave rise to women-owned venture capital firms and venture networks who are intentional about investing in women owned businesses. Africa has provided great case studies and momentum to this with venture companies like Dazzle Angels, and Rising Tide Africa which is a group of women angel investors that are harnessing their power, network, passion and capital to positively impact and invest in an empowered and inclusive growing economy, and society.

·             Startups and organisations have now had to become technology adjacent in understanding their customers, business model and particularly financial services company, HOW they deploy capital. In his book Tech Adjacent, serial technology entrepreneur and thought leader, Mushambi Mutuma engages on doing business in the future and the importance of constantly evolving with the exponential technology and innovation that’s also growing quite exponentially in business. “What would make you absolete in a day? What technology are you terrified your competitors will figure out? How would we run this company with 10 percent of our current staff? How would you monetise if consumers expected you products/services to be free?”. These questions are some of what, I believe, have influenced how capital and credit is becoming more inclusive for women to be able to bypass the archaic banking structures and enable them to get their food in the door. The Women’s Entrepreneurship Development Project has contributed to the rise of female-owned businesses in Ethiopia by providing women with an alternative to collateral. This is in the form of a 45 minute psychometric test that provides a reliable indication of whether an entrepreneur and whether you will be able to repay a loan without any collateral required. At present, the repayment rate is at 99.4%. Another example of how being technology and future adjacent has served the venture capital and investment ecosystem is through the constant data science application and introduction of technologies like machine learning and artificial intelligence to aid with decision making, and also democratising who can become an investor. The funds in magnitude still lie with the wealthy to invest in “lesser risk averse male-owned entities”, but the opportunities to value the data and tap into the industry with impact investing and seeding the billion dollar potential of the global economy is fair game.

 

With all the data on the table supporting why inclusion, and particularly why investing in women owned businesses is important for the current and future of the economy, and AfDP’s President Akinwumi Adesina’s call for increased support to for women to be active stakeholders in the economy, why are we constantly accelerating towards the opposite direction when it’s time to seed the capital? The answer may not be as complex as we may make it to turn out, however we can applaud the innovative strides being taken to drive inclusivity and capital returns on these investments. The future of venture capital and investments is democratized, technology and data science adjacent and inclusive of breaking down archaic, exclusive and oppressive systems to ensure that we build inclusive futures and shared growth economies.

 

 

Published in Inno trep tech

New Role, New Industry

Monday, 24 June 2019

 So it’s been quite a first six months of 2019, which meant closing a couple of chapters, stepping up into a few and the start of new blossoming ones. As my journey with the global intelligence and media firm, Thomson Reuters came to a close in March of 2019, a new one began in June of 2019 with a pan-African investment and advisory firm Impact Amplifier. The career change has been an overwhelming and energizing experience so far that allows one’s creativity and expertise to be stretched at the opportunity to turn industry upside down through the business of ideas and impact acceleration.

 I'm in a new industry, which is quite an interesting, exciting and intimidating to say the least - that of the behind the scenes outlook at creation in private equity and venture capital investments. The firm looks at Social Enterprise Acceleration, Impact Ecosystem Strengthening, Impact Investment Services and Entrepreneur, Investment and Ecosystem Research which all have their particular sub-categories that respectively look at elements like investment readiness, new funding mechanisms, deal sourcing, advisory and so much more. The essence of these capabilities are all rooted in the working with enterprises who are committed to actively and intentionally do business that is impactful through the socio-economic and environmental lenses.

My role as an Associate in Impact Acceleration includes unpacking impact assessment coordination and management, coordination and participating in primary and secondary market research activities, driving internal and external investment/grant readiness and capital raising acceleration process for investment readiness programmes, building a new pipeline for business development and supporting the partners in investment readiness deals. Now I should warn you, no day is the same, and that’s what’s not also rewarding but allows for practices like deep mind when you’re focused on research on one day and being in the field with the customer and unpacking their theory of change. Now, in any workplace setting, one cannot mostly achieve anything on their own without the collaboration with an incredible team and colleagues. What’s really cool about the space that I’m in is that everyone comes from different backgrounds with a diversity of ideas, which when challenges arise, continue to push creativity and solutions envelope.

The impact investment and advisory ecosystem is an industry quite in its infancy globally, and moreso due to the costs associated with the processes and metrics in measuring impact. Stakeholders see the value in impact assessment - investees for their investors, investors for their boards, businesses for growth and organisational strategy etc. I'm really excited to deep dive more into the space, there is a lot of intelligence that exists, and moreso the value added to profits greater than economical. Here's to measurable and accelerated inclusive development, and learning and doing work that matters. 

Would you be interested in a Day of the Life of An Associate later in the year? Let me know in the comments section and we’ll make it happen J

 

                                                         

 

Published in Inno trep tech

 

What is Innovation Capital?

In a few weeks I’ll be delivering an address at one of South Africa’s universities upon the invitation of the Director of Technology, Innovation and Commercialisation on some key innovation practices in the country, this will be to the regional campus’ staff and students. Last week, I addressed an audience of over 225 women on leveraging their capital (in trusting themselves) through innovation tools. Apart from the innovation addresses in common that these two invitations carried, it’s how I was contacted and made visible to these two entities that will touch on what we’ll be unpacking in this article. Through amplifying my work and thought leadership engagement, and many other properties that I’ll get into in in the coming paragraphs, my Innovation Capital banked on these opportunities.

A concept coined by Marc Benioff who is Salesforce’s Founder and CEO, Innovation Capital is (to paraphrase) the accrued capital and impact to influence and fund an idea and the resources needed to actualise it. Have you ever wondered how Elizabeth Holmes successfully raised millions of dollars for Theranos, despite its failure? Or how Elon Musk continues to build and bankrupt ideas that are bankable, yet seem incredibly ludicrous? Innovation Capital is not only exclusive to individuals, but to brands like Apple who continue to incrementally innovate and elevate their standard to a point where their customers become their brand advocates? Or how recently listed UBER continued being funded by investors even though it was a blood-sucking investment? Some have it, and some can still raise it; so how do you ensure that you have it? You build it, and you do so patiently, because Innovation Capital cannot be wired into your account, you have to earn it. Let’s unpack this a bit.

The Characteristics of an Innovation Capitalist?

As with any capital, no matter who or what brand you are, it accrues in volume over time before it can be of value, innovation capital is no different. To be an inspired gamechanger like an Oprah Winfrey and building a school for girls in South Africa, not only do you need to be the self-made billionaire with multiple businesses and have a direct line to a Nelson Mandela who can make political calls to get your idea into a proof of concept. Are you getting my drift? The characteristics of an innovation capitalist are dependent on who you are, the strong ties that you have with the right network, the work that you’ve done and the stages and platforms that you employ to amplify your work. Now, even with all these characteristics in mind, as is the process of innovation, there is no guarantee that it’ll work out, proof of concepts aren’t always proven. This, entrepreneurs and intrapreneurs will tell you, but that’s the beauty of innovation, there’s no guarantee but through the research and development, there’s always a lesson or few to be learnt. Having worked in corporate innovation for the past two years and being at the nucleus of product management and development, I cannot tell you how many ideas were killed (in their respective stages) in as much as that we launched. But in this, the true value became not in how many times we failed, but how quickly we did so and did it so with an accrued value for my manager (with incredible visionary leadership – another key component) to continue getting these ideas funded.

How do you Build Innovation Capital?

So, whether your ideas take off or not. How do you begin to build Innovation Capital? If you’re not an Oprah, a Mandela or even a Hitler (dark, I know, but his capital funded Nazi Germany) and you’re a student, entrepreneur or working professional who wants to create or accrue their innovation capital, where do you begin? First things first, you acquire the knowledge of where you’re wanting to be an innovation capitalist in – in order to play the game, you need to know it. The skills that you’ll acquire from this will enable you to not only set yourself apart, but then have the expertise and confidence to be able to find the platform to share these ideas. These are the makings of a leader. Becoming a leader in your industry is a key component in building trust in your shared ideas, as this garners visibility, which catapults the effectiveness of a personal brand that people trust with their capital.

Conclusion

An amalgamation of many accrued capital, innovation capital requires human, social, intellectual and other forms of capital in order to yield momentum and/or return on investment, nothing is guaranteed. Now that you have the knowledge and the tools of the term, how will you put it to practice and ensure that it get funded? May the best idea win, and the capital odds always be in your favour!

 

 

 

 

 

Images Supplied: The Corporate Canvas

 

Published in Inno trep tech

My name is Vuyolwethu Dubese and I am 23 year old Girl in Media and Technology, exploring Innovation, Intelligence, Inclusion and Entrepreneurship. With a focus on African technology and entrepreneurship, the intent is to be a part of the ecosystem and organisations driven to develop the African lives and the narratives that are shape shifters in how Africans and the world perceive the continent.

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