Is the global private capital landscape ready to finally begin shifting from its historical pale and male dominance?
Initial research is showing that while women-led companies are less likely to raise capital, they perform better and deliver more than male-led counterparts when they do receive it.
Opinions / Women Investors / Entreprenueur.com / Image credit: Unsplash
Photo: Tara Sabre Collier, Gender Lens Investor and Entrepreneur in Residence, Oxford University and Lelemba Phiri, Principal & Gender Lens Investor, Africa Trust Group
Commitments to gender and racial representation in financial markets have been escalating over the past several years, from Goldman Sachs to the International Finance Corporation. And it’s no wonder, research from McKinsey & Co. has indicated that companies in the top quartiles for ethnic diversity are 35 per cent more likely to generate higher than average profits. Similarly, companies with the highest gender and ethnic diversity in management had innovation revenue that was on average 19 per cent higher than counterparts with below-average diversity in leadership. Meanwhile, Fortune 100 companies with the highest women’s representation in leadership generated 53 per cent higher returns on equity.
In line with this shift in the global financial landscape, gender lens investing has leapt from funds managing $2.2 billion in 2018, to 138 funds managing nearly $5 billion by 2020. More recently, in the aftermath of the George Floyd lynching and a global Black Lives Matter uprising, many funds have likewise pledged to begin backing greater shares of Black founders and Black and minority ethnic GP’s. In fact, racial justice index funds and ETFs are gaining increased momentum and investor attention.
Nonetheless, shifting to a more gender and racially inclusive investment ecosystem may mean shifting the modus operandi, especially when it comes to funding underrepresented entrepreneurs.
Gender-inclusive Financing: Paving New Pathways for Women
Data from various accelerators and government research suggest that women-led companies in emerging markets get stuck at earlier stages than their male counterparts. This is in spite of regions such as sub-Saharan Africa recording more women than men starting up businesses. This discrepancy stems from various factors. For example, the gender pay gap limits women’s availability to bootstrap for as long and as far. Women are also shouldering an average of three times greater childcare and household labor burdens, which further diminishes availability of time and capital for their businesses.
