Women and Venture Capital

Of the numerous venture capital (VC) firms in the United States, only about 8 percent of them have female partners, and that may be hurting the overall performance of their portfolios. Having no female partners at VC firms, evidence suggests, may lead these firms to invest less in women-led or founded companies. However, what the VC world may be missing out on is a potential source of innovation: female-led VC firms can bring greater returns.

According to research done by First Round Capital, the company has experienced success by funding more women entrepreneurs than other firms. A review of its holdings shows that companies founded by women outperformed those led by men by 63 percent. Businesses with women at the top received a significantly lower portion of venture dollars.

Sara Brand, a founding partner at True Wealth Ventures, a venture capital fund that invests in women-led businesses, believes that including more women is an opportunity for investors looking to maximise their inputs. VC firms that have women as partners are more likely to invest in companies that have a female presence on the management team. But with women making up only slightly more than 10 percent of decision-makers, it's not surprising that female entrepreneurs are losing out on funding.

As female entrepreneurs struggle with less access to capital for their ideas, it's a wakeup call to venture capitalists and investors. Around the world, investors such as Henner Diekmann, a partner at law firm Diekmann Associates that deals with foreign direct investment in Southern Africa, are looking for opportunities to grow.

Doing More with Less

A study undertaken in 2016 called the Global Entrepreneurship Monitor found that women-led start-ups required, on average, around $10,000 to get going. Further, many female participants in the study said that it would take just half of that amount to get underway, with many looking to family and friends as their source of funding.

Why women need so much less to engage in entrepreneurial ideas could be the fact that women are believed to be efficient spenders, choosing to use funds more wisely since they have less.

Limited Funding

In various cases, having less to begin a business with comes from necessity. It's no secret that women find it harder to obtain capital for their ideas than their male counterparts. According to research by the Small Business Association, many VC firms tend to play it safe when it comes to investing, choosing to go with informal social networks. And since many of these firms are male-dominated, these men tend to fund social networks which happened to be filled with, you guessed it, men.

The solution, in the venture capital world, could lie in having a female presence at the executive level of VC firms. Having a female partner in a VC firm increases the likelihood of investing in a business with a woman on the leadership team, and this also extends to hiring women CEOs.

Time for Change?

That a woman can be just as successful and dominate an industry is not in doubt anymore. There are numerous examples of thriving female entrepreneurs. There's BBG Ventures, co-founded by Nisha Dua, which supports female-led companies and has more than 40 companies in its portfolio with an enterprise value north of $1 billion. Start-ups such as SunRun and Houzz have women at the top, and they've reached unicorn status (a start-up company with a value of more than $1 billion).

There remains a lot to be done, but of utmost importance is getting successful women in positions to support those who are working hard to break through. Not only is having female leaders investing in women-led start-ups important in increasing funding, but it also enables the creation of mentors and role models. 

Venture Capital Industry Lessons from Scandinavia

Ireland's €1billion venture capital (VC) ecosystem finds itself at a crucial point; large funding resources have slowed down, threatening the flow of seed capital. While the amount of money invested in the first quarter of 2017 is about €240 million, the financial taps could dry up going forward. Start-ups at their infancy stand to be the most affected if this becomes a reality.

For a long time, Ireland's venture capital scene has relied on three significant investors: Enterprise Ireland, the European Investment Fund (EIF), and the Ireland Strategic Investment Fund (ISIF). After these three, the private sector has been a reliable partner, as have banks and a number of pension funds. With a small investor base, the looming prospect of reduced venture capital funds is creating uncertainty among various stakeholders.

Around the world, ensuring the steady flow of capital is vital to the development of venture capital. It's an aspect that individual investors such as Henner Diekmann keep an eye on at all times. Mr. Diekmann works for Diekmann Associates, a law firm that offers guidance on various aspects of company structures and setups.

What to Do?

Ireland's answer to the potential drain on venture capital for its start-ups may lie in looking at the more established VC markets of Scandinavia, particularly in Denmark and Sweden. In the former, a fund of funds was established for investors, where they were offered the option of investing their resources in a bond-type asset. For investors, half the money went into the bond while the other half went into venture capital. Investors reaped about 12 percent returns on their investment in the first round, more than enough incentive to participate in the next round.

Sweden, on the other hand, is one of the most prolific technology hubs in the world, boosted largely by a thriving venture capital industry. The country, which has a population of about 10 million, has adopted a global mindset when it comes to tech and innovation. It is associated with some of the biggest brands in the technology industry, including the likes of Spotify, Minecraft maker Mojang (acquired by Microsoft), Skype (also acquired by Microsoft) and Candy Crush parent company King, among others.

This esteemed list of globally-recognised brands, which also includes others such as IKEA and H&M, didn’t happen by chance. In the 1990s, the Swedish government invested heavily in technology infrastructure, allowing its citizens to enter the digital economy early. Not only did this equip people with the knowledge and tools to become a nation of disruptors, but it also laid the foundation for entrepreneurial collaboration.

The Swedish approach to venture capital funding is to encourage small initial public offers (IPOs) that are aimed at attracting investors at a retail level. The results have made a difference, enough to attract Irish interest. Despite the small population, Sweden has had 51 stock market flotations in 2017, ten times more than what Ireland has accomplished. The equity culture in Sweden has successfully attracted retail markets, allowing more than €1.1 billion to be raised in Swedish IPOs. As an incentive to investors, the authorities have established a tax arrangement that substitutes capital gains tax with an annual fee of 0.25 percent for amounts reaching up to €15,000.

Additional Factors

Other than a slowdown in venture capital funding, two other factors could impact the Irish VC ecosystem in a big way. The first is based on whether the United States chooses to change its tax laws, which would affect Irish investors looking to put their money in companies that have US revenues. The second is Brexit, which could impact the European Investment Fund's decision to keep investing in the United Kingdom.

Leadership Programs Helping Female Leaders Thrive in India's Start-up Scene

While women represent a significant portion of the workforce in India, only a small number of them have progressed to leadership positions in business. According to data from the National Sample Survey Organization, 14 percent of businesses in the country have women at the helm, meaning the breakthrough on women-led businesses has some way to go.

It's not just in business where female representation is an issue, as even the start-up industry is suffering with low numbers – women account for just 9 percent of Indian start-up founders. Gender discrimination and cultural biases are some of the reasons attributed to the low levels of female leadership in the country. To combat this, some in the entrepreneurial community have started leadership initiatives aimed at encouraging the development of female entrepreneurs.

Given that women are a potential source of talent that can help take India's entrepreneurial scene to the next level, such initiatives are vital and welcome. Henner Diekmann, a partner at Diekmann Associates (based in Southern Africa), is among many investors who are encouraged by the growth of leadership development programs aimed at advancing women.

The following are some of the initiatives established to lead this cause.

SAHA Fund

SAHA Fund believes in discovering and developing the untapped potential in women and making them part of the top leadership in economic development. It sets out to invest in companies that employ a majority of women in its workforce or create a product aimed at women, with many of these falling within sectors such as mobile, analytics, healthcare, food technology, social media, and technology.

Raising capital is one of the biggest challenges faced by women, a hurdle that has not been helped by the investor perception that women lack the ambition to lead start-ups. It's a notion that SAHA Fund works hard to dispel, with good results. Fitternity, a fitness aggregator supported by SAHA, has raised millions of dollars in funding rounds, attracted around 300,000 users and reporting annual sales of about $3 million. Founder Neha Motwani credits SAHA Fund for putting the start-up in a position to succeed.

Through its own research, SAHA Fund has found that large companies with more women in leadership positions perform relatively better financially, posting 41 percent higher returns investment (ROI), and 56 percent better operating results. In the technology sector, women-led private Technology companies achieve 35 percent higher ROI and 56 percent higher revenue when the venture is backed.

SonderConnect

SonderConnect is a non-profit trust that's headed by four women who believe in nurturing women-led start-ups in India. Their goal is to grow these ventures into highly successful companies and they've focused on giving this group of women founders the knowledge and tools to succeed. SonderConnect aims to play a significant role in building up female entrepreneurs, with the goal of eventually raising up a generation of successful female entrepreneurs.

One of the areas that SonderConnect is working to improve is getting women to highlight their accomplishments – both personal and professional. Investors tend to be more open to founders who are confident and sincere in their ambitions. SonderConnect facilitates workshops and mentorship programs to help start-ups fine-tune their pitches. Facilitators include legal experts, marketing professionals, and executives from some of the biggest brands in the country.

Anita Borg Institute (ABI)

The Anita Borg Institute (AnitaB.org) is an initiative that seeks to include more women in the growth of India's technology start-up scene. The organisation connects and guides women in technology, supporting them through a number of programs that help them learn and develop their potential. 

Start-up Trends Entrepreneurs Should Know

There are a lot of things that start-up founders can do to get their business going and taking current trends into account is one of them. Studying patterns and adapting to them is a useful way of making sure a company is well-positioned to deliver and gain credence with clients. This is understood by business experts such as Henner Diekmann, a partner at law firm Diekmann Associates. The firm specialises in international trade and foreign direct investment in Southern Africa, offering guidance and advice to investors on corporate structures and setups.

The following are some of the trends that entrepreneurs can follow to ensure the success of their ventures.

Increased Competition

With increased internet access and usage, the stakes are higher in establishing start-ups. It's easier for competitors, sometimes far away geographically, to break into a firm's local marketplace and get clients interested. If your business is local, don't ignore the importance of digital marketing and keeping an eye out for good partnerships that help to grow the market share.

More Attention From Larger Companies

As corporations and multinationals see start-ups disrupting the norm, they realise there's more to gain by partnering with entrepreneurs. As a result, larger companies are willing to become investors and mentors to these ventures, leveraging their pool of resources (money and expertise) to bring start-ups into the fold. The benefits derived by the more prominent company include a diversified product portfolio and the chance to add useful solutions and technology it might not otherwise develop.

Adoption of Blockchain Technology

Blockchain technology, an emerging interest area for the financial services industry, can also be used by start-ups seeking to ride the technology wave. Blockchain technology can be adopted for internal databases and, when tied to cryptocurrency such as Bitcoin, as a payment mechanism. The latter use can potentially introduce lower transaction costs to businesses, which may already be looking for means to reduce operating expenses while remaining profitable.

Smarter Offices

The Internet of Things (IoT) is steadily providing solutions that make life at home and work easier. These solutions, when properly adopted, can contribute to a smart office environment for a start-up venture. These advancements can increase efficiency in the workplace, while also ensuring the business can meet client needs.

Smarter offices play into the increased desire by start-ups to be lean spenders; they want to accomplish as much as possible while committing the least amount of finances. Investors place more emphasis on efficiency, and part of achieving that is using the available tools, solutions and platforms.

Additionally, more ventures are running their operations without the classic office setup. Mobile devices make it easier to work from dispersed locations, while digital workspace solutions offer opportunities for team members to collaborate.

Emergence of Niche Technologies

Apart from IoT, start-ups are making use of other niche technologies, including augmented reality and virtual reality (AR/VR), artificial intelligence (AI) and machine learning to boost their service offerings and engage customers. The onus is on start-ups to learn all they can about these technologies and how they can be integrated into the business.

Other trends within the technology sector include cloud solutions, big data and analytics, and chatbots.

An Increased Focus on Cybersecurity

Many start-ups have focused on solutions that can be delivered via web and mobile applications for use on smartphones, tablets and wearables. With these devices capable of storing data, there's a need to secure them from the increasing risk of cybercriminal elements. For business owners, this means an increased focus on ramping up security.

China's Efforts in Boosting Start-up Businesses on the Rise

Entrepreneurs and business founders in China are finding life sweet, thanks to an increased level of investment through venture capital (VC) firms. The fear of being left out has given life to new ideas, as evidenced by the growth of businesses such as Kala Bike, a bike-sharing service that has inspired competitors. In fact, China is giving the United States a run for its money as the top venture capital industry in the world.

Just to put things in perspective, the bike-sharing business attracted so much attention (and investment) that market leaders Ofo and Mobike attained billion-dollar valuations in a matter of months. By the end of 2017, more than ten million shared bikes will have hit Chinese streets. In a country where successful business ideas are replicated almost instantaneously, at least 20 bike-sharing companies are competing for the market, each with its unique appeal to clients.

And it's not just bicycles that triggered an investment craze. The electric car business attracted more than 200 companies, while more than 2,000 mobile apps were created to deliver health advice, with a handful valued at more than $1 billion. A similar rush for beauty apps saw the rise of Meitu, which was estimated in late 2016 to be worth more than $4 billion.

In 2016, VC-backed investments reached a record US$31 billion, with many venture capital firms seeking to get a presence in the increasing number of businesses. This figure came from more than 300 investment rounds and represented a significant rise from the US$26 billion invested through 513 rounds the previous year. Sectors of interest for many investors included big data, artificial intelligence, robotics, fintech, and health care start-ups. Beijing venture capitalists invested more than $18 billion.

According to Silicon Valley Bank, venture capital fundraising has increased tremendously in the recent past compared to a decade ago. Back then, a quarter of all venture capital came from domestic sources. Local funding now accounts for more than 70 percent, attributed in part to China's shift of focus from manufacturing and extractive sectors. This development has opened doors for investors, both locally and abroad, in turn creating wealthy entrepreneurs. To investors such as Henner Diekmann, a partner at Diekmann Associates – which specialises in international trade and foreign direct investment in Southern Africa – the situation in China is an appealing and potentially rewarding one.

The Chinese government has contributed to venture capital growth by creating substantial funds that were estimated to be more than $300 billion in 2016. This abundance of financial resources has been boosted by a favourable business environment that is built on speed. In 2016 alone, 1,900 kilometres of high-speed rail came into service. Internet uptake, which was slow at the beginning, has made China an online shopper’s destination, with more online local spending than the US. Cash is being speedily replaced, and the willingness to embrace the digital economy has opened up work and business opportunities for millions of people.

China's rise in the venture capital industry is helped by a booming middle class that has the spending power to invest in local innovation, something that helps businesses scale faster. Additionally, Chinese companies adopt a different strategy to marketing and advertising. Rather than invest heavily in these aspects, businesses have tapped into cultural differences to create a give-and-take nature of customer relationships. Venture capital firms see themselves as mediators between the government and entrepreneurs who remove barriers to progress.

It's not just locally where venture capital investment is booming. Outbound investment is expected to remain stable, according to KPMG, with many investors seeking to acquire solutions that can be integrated into the Chinese market.

Venture Capital Deals in Asia Lead the Way

An increase in venture capital activity in Asia topped a record in the second quarter of 2017, with a total of $47 billion (£35 billion) in deals announced. The record sums spent are representative of what financial experts and investors such as Henner Diekmann have seen in 2017: almost half of global venture capital deal value is in Asia. Mr. Diekmann is a partner at Diekmann Associates, a law firm that offers guidance and advice on company setups, corporate structures and contracts in Southern Africa.

Since 2013, Asia's rise in venture capital dealmaking has been on a consistent rise, with the majority of the deals occurring in Greater China. According to a report by Preqin Private Equity & Venture Capital, transactions in China accounted for $28 billion (£21 billion) of the total deal value, with India coming second ($6 billion/£4.5 billion). Within the southeast region of the continent, a large proportion of deals happened in Singapore, while the largest proportion of deal value happened in Indonesia.

Over the years, Asia has seen a steady rise in the number and value of venture capitals deals. Activity in Greater China has largely spurred this growth, as some companies have become prominent entities on the same level as firms backed by venture capital in the United States. This growth speaks to the rise of several economies in the region, which provides an avenue for investment opportunities by venture capital firms.

As much as the dealmaking is good news for Asia's economic growth, the excitement has not been matched in other areas of the venture capital industry, notably the exit and fundraising sectors. Slow fundraising activity means less capital goes to venture capital managers for acquisitions, while slow movement in exits means these managers are unable to dissociate from their holdings. For Asia's VC industry to thrive, it's going to require robust activity on all fronts.

An Inside Look

Approximately 200 funds are raising capital for investment opportunities in the region, with the China State-Owned Venture Investment Fund among them. The fund has a target of about $29 billion (£21.97 billion), and if successful, could become the largest venture capital fund ever. Activity in Greater China is beginning to rival that of Silicon Valley in the US and could enable the country to become the centre of venture capital activity. The Chinese government's encouragement of entrepreneurship by providing financing is helping reinforce this message.

In early 2017, 183 funds with a focus on Asia had a target of raising $56 billion (£42 billion) in venture capital, nearly triple the amount funds had aimed for at the beginning of 2016.

China's Role

China's prominent role in the growth of venture capital dealmaking in Asia is not by accident. In 2016, investments from venture capital firms reached more than $31 billion (£23 billion) as investors eyed an increasing number of innovative ideas. Venture capitalists located in Beijing invested more than half of the total amount, with the popular sectors being artificial intelligence, big data, and robotics. There was also a continued interest in healthcare, fintech (financial technology) and education.

This strong performance in venture capital investment was driven by a number of big-deals, including Alibaba's affiliate Ant Financial funding round that reached $4.5 billion (£3.39 billion) in April 2016. Additionally, provincial governments got in on the action, with many provinces starting to invest in companies. The Hubei provincial government, for example, armed itself with $81 billion (£60 billion) to invest in venture capital companies such as CBC Capital and Sequoia Capital LLP.

Across the country, local governments are keen to invest as they seek to modernise the economy and spur the development of sectors such as biotechnology, fintech and online solutions, to reduce the dependence on heavy industries for jobs creation and growth.

News UK Opens Incubator Lab for Start-Ups

News UK is a British newspaper publisher that is a subsidiary of the American media company News Corp. It publishes various newspapers in the UK, including The Sunday Times, The Times and The Sun. Between the late 1980s and 1995, News UK owned the first national newspaper printed in colour. In the years since, the company has strived to maintain a steady presence with readers and boost its revenues.

In 2017, News UK decided to venture into the start-up market by launching an accelerator programme aimed at helping start-ups improve their revenue streams. In a first for the newspaper publisher, the programme will be undertaken in partnership with Unruly, a video advertising firm, and Fluxx, a product innovation company. Unruly will host the programme, while Flux will run and staff it.

The venture is open to businesses from any sector that can use News UK's data, expertise and journalism to come up with new products and revenue streams for the publisher. The focus for the selected start-ups will be to work with News UK to generate more value for the start-up, the publisher and its audience. Furthermore, News UK will provide the mentoring and insights needed to get the start-ups working. When the month-long incubator programme ends, the publisher has yet to reveal concrete plans to invest or acquire the start-ups, instead choosing to support them and become champions of innovation.

Start-ups selected for the programme will spend four weeks at Unruly working on their proposition. To motivate them, they will receive £5,000 in cash, mentorship from other entrepreneurs, the use of News UK's image and written content, and product testing opportunities with the publisher's vast audience.

Incubator programmes have been around for a few decades, with their presence helping boost growth and innovation in the UK. Many investment experts such as Henner Diekmann – a partner at Diekmann Associates – appreciate their importance in speeding up the development of small businesses and guiding them to success. Entrepreneurs stand to benefit a lot by choosing to sign up for incubator programmes.

A Focus On Development

Incubators play an essential role in offering businesses the guidance and resources needed in their infancy. Many provide tangible benefits such as office space, legal advice and accounting guidance to start-ups. Having this infrastructure in place allows the start-up team to focus on the important matters – the core business of developing products and services.

Access To Business Networks

Many incubator programmes are run by a network of business partners, something the participating start-ups can use to their advantage. Having access to a reliable business network is beneficial in various ways. From a business perspective, it allows the entrepreneurs to cultivate meaningful relationships that can come in handy in the future. From a public relations angle, this network can help a small start-up gain the credibility and traction needed to position itself in the business market.

Worthy Support

Many of the mentors who guide start-ups through incubator programmes have learned through experience, making them the best sources of knowledge and guidance. These mentors are better placed to help young companies define their strategy and vision.

In the UK, it is estimated there are more than 300 business incubator programmes that have collectively supported thousands of businesses. Many of these ventures have been early-stage businesses that have reaped the benefits of access to funding, mentorship, business networks and infrastructure to achieve success, both domestically and internationally.

For entrepreneurs looking to establish their ventures, considering an incubator programme is increasingly becoming a more attractive option.