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.