Tanya Rolfe is the founder of Her Capital. She is based in Singapore.
Women are 51% of the world's population. They open almost 40% of all businesses and receive less than 3% of all venture capital funding. This sentence never ceases to stop me in my tracks whenever I write it, and then continue with the sad follow-up statement that the 3% did not improve for seven years.
The outlook for female founders has never looked good, but then COVID-19 hit and the venture capital funding for female founders actually decreased. We ended 2020 a lot closer to only 2%, but the pandemic is still plaguing most of us and we do not yet know how 2021 will play out.
Despite mounting data, which suggests greater returns are generated by female founders, women in business continue to be overlooked by traditional venture capital. One piece of data worth mentioning is a study by Boston Consulting Group which found that for every dollar of funding, women-led startups generated a return of 78 cents, while male-founded startups generated less than half that, at just 31 cents.
Why should we all care? Because this problem is not specific to venture capital. The fuel that allows companies to scale at the early stages, venture capital is the springboard that puts startups on the trajectory to becoming successful large businesses. If we do not have women-led innovation in the mix, most businesses and services available to us end up being led by men and for men.
As a venture capitalist currently living and breathing these fundraising challenges, I was recently asked while pitching my fund to a potential investor: "Why are you focusing on just women, because it is very off-putting?" I consider myself pretty fast on my feet but there are occasions when I simply do not have a witty or sharp response. Well, not one that would be socially or professionally acceptable to say out loud.
According to the Untapped Potential of Women-led Funds, a report released in October last year by New York-based Global Women in VC, "if we continue at the current pace, it will take female fund managers 200 years to achieve equal status to male counterparts."
The key to increasing venture capital funding to women-led companies, the report found, is through female-founded venture capital funds with a strategy for investing in women. It is not enough to simply add more women and stir them into existing venture capital funds, as their strategy is often already defined and often led by men.
In Southeast Asia alone, where I am based, 76% of venture capital funds do not have any women in decision-making roles. Globally, only 2.4% of fund managers are women. While I do not see this as a men vs. women scenario, my company is simply aiming to redress a statistical imbalance because it just is not true that 97% of all entrepreneurial talent resides with men.
On a positive note, my fund represents an arbitrage opportunity because we are playing in a space where not many other funds are playing. Female entrepreneurs are actively seeking us out as their seed capital of choice because they want more diverse investors backing them.
The action needed to rectify this imbalance is clear: more women-led funds result in more women founders. However, the biggest challenge for new funds with female managers being "new" means being classified as "emerging managers." It is estimated that 90% of all female-focused funds are in this category.
With most institutions wedded to traditional investment guidelines that set down the minimum amounts invested into a particular company and the maximum percentages of overall funds that they will take, this precludes most emerging managers who often start with smaller funds.
The second hurdle is related to our track record. As institutions have a requirement for fund managers to show their successes, this is hard to do as first-time or even second or third-time fund managers. In most cases, fund managers such as myself and my business partner Gail Wong are forced to rely on high-net-worth individuals for investment.
I often feel a little cynical about the focus some institutions have when it comes to female equality because while there are a large number of institutions and even development banks who have signed up with bold commitments to gender equality and addressing the United Nations' Sustainable Development Goal 5 "to achieve gender equality and empower all women and girls," there is little real action. Most will not invest in funds without them being a proven package.
How will female founders receive funding and what do we tell our daughters now? That they should dream big but follow up with the caveat, they should not dream too big because when they reach adulthood, they will be severely disadvantaged just for being a woman?
I recently overheard my four-year-old daughter, Adelaide, proudly telling a friend that her mother has a business that "gives money to girls because girls don't get any of the money." A pretty accurate description of my business made me think that if my four-year-old can see the imbalance, then why cannot the adults?
Pointing capital toward change such as gender equality will require institutions to not only embrace new metrics publicly but consider new ways of working. Those who are committed to driving meaningful change will need to start from within: with self-examination of existing practices and a willingness to adjust for the challenges ahead.
My fund does not exist because we are feminists but because the financial data strongly supports female founders. The plain truth is that investing in women is good business.