A few months ago I penned an article which engaged on the importance of inclusive capital in the startup ecosystem, this based on my cumulative years working in the startup development and advisory ecosystem, as well as having researched the appalling data on why men-owned and led startups continue to receive almost 100% of startup capital funding, globally. The success of the article invited global conversations and opportunities to consult on various enterprises, and it also highlighted how industry (and outside industry contributors) saw the conversation as not only exclusionary, but as a means to absorb the old boys club legacy of mirrortocracy and investing in women as only a tick box exercise with no merit. So I’m going to bring some data to the table, and engage on the Risk on Investment on funding of the female economy.
Funding the Female (owned) Economy (FOE) is not just diversity and inclusion aesthetics, it’s an economic development catalyst to amplify sustainable impact. This FOE is not an exception to how the investment model works sustainably (i.e. creating a return on investment), but rather a necessity to expand the capacity of the investment model and create accelerated triple bottom line impact.
The 63% (Risk) On Investment Opportunity
“Female founders drive 63 percent better ROI than male-only led companies. It’s a no-brainer. We have 40 companies in our portfolio -- Zola, The Wing, Glamsquad -- with more than $1 billion in enterprise value. Some people would say, well, all of these are “women’s” ideas, right? But I would just call them businesses for a really big section of consumers! When Susan and I launched the fund (BBG Ventures), it was never with a do-good intention. We knew we could drive a great return.” - Nisha Dua, co-founder of BBG Ventures as quoted in an interview on why the venture firm is doubling down on investing in female founders.
In 2015, First Round Capital, a seed stage venture capital firm released a report that highlighted its 10 year mark in the venture ecosystem, and shared insights on their portfolio. A key finding was that companies with female founders performed 63% better than portfolios with all male counterparts. Further data from a Illuminate Ventures whitepaper also highlights that in particular, high technology firms venture-backed and led by women are great custodians of the capital that they receive by using it more efficiently and overall having higher annual revenues than firms led by their counterparts. So why aren’t funding institutions funding the FOE, and seeing female owned companies as risk on investment instead as return on investment?
Through the above mentioned data, we’ve established that the reason cannot be due to seeking higher financial returns on investment. Perhaps it’s because men are building businesses faster than women?
Building Businesses TWICE as Fast
If that were the case, then that would untrue. In 2019, the State of Women-Owned Businesses Report, which is commissioned by American Express published that US women “ … with women with diverse ethnic and geographic backgrounds started an average of 1,817 new businesses per day in the U.S. between 2018 and 2019”. The report further expresses that over the past five years women-owned businesses increased by 21%, while all businesses increased only 9% and that total revenue for women-owned businesses also rose slightly above all businesses: 21% compared to 20% respectively.
This data is not only exclusive to the US, as maintained by 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.
In demonstrating financial performance and the business growth and acceleration of women-owned businesses, what else could motivate the slow progression of funding in the FOE? In Africa, only 4% of capital went into female founders (that raised over $1M in 2019) as compared to the average of 2.2%. Are there not enough diverse sectors that women are enterprising in, that year after year, cumulative deals and capital is constantly on a single digit number?
Innovation across Diverse Sectors
Enterprises like the Cartier Women’s Initiative showcase that women are not only breaking through various industries like luxury fashion, construction and real estate, information systems and energy and utilities; but that the FOE is diverse as it is a triple bottom line hitmaker like Manka Angwafo in Cameroon who is an agri-tech entrepreneur who provides access to finance to farmers, equipment hire and have to date not only boosted the farmers’ income by 200% but also has helped helped 373 farmers, with a repayment rate of 97% through a group economics strategy
I’ve also recently curated a list of funding/capital opportunities for Africa women-owned and led businesses, with industries ranging from technology and human rights based enterprises to grants and angel investors from across the continent. Recipients of funds and grants vary in investment size and in industry, and country, worthwhile to have a look.
What Will it Take?
Tanzania, one of the fastest growing economies in the sub-Saharan Africa region with an annual GDP growth of 7% since 2013 is driven by Small Micro and Medium Enterprises (SMMEs) of which more than half are women. However, their SMMEs cannot grow because of lack of financial capital. This is unique to the FOE, and doesn’t discriminate whether developing or developed nation. In the United Kingdom (UK), the Rose Review reported that due to a lack of financing, this barrier resulted in women “ … start businesses with 53 per cent less capital on average than men, are less aware of funding options and less likely to take on debt.”
So, how many more articles, conferences, research and campaigns you may ask in order to close the gender investing gap? Too many to tell. The gap closing also shouldn’t have to be solely reliant on more female investors equal more investment in female owned enterprises, but rather collaborative efforts like The Next Billion, investment in training female fund managers to have a (non decorative) seat at the table and continued conscious investment in the Female (owned) Economy (FOE).