Unicorns are rare all over the world, but female founders were even harder to find. Among all 23 unicorns in Southeast Asia, only two startups were co-founded by women: Tan Hooi Ling from Singaporean ride-hailing unicorn Grab, and Liu Lu of workplace innovator JustCo.
According to Statista, in 2019, only a small fraction of startups worldwide (about 20 per cent) have at least one female founder, registering a steady growth from 10 per cent ten years ago. Moreover, only around 12 per cent of venture capital funding were invested in startups with at least one female founder, remaining plateau ever since 2011.
The pandemic has posed further barriers to these entrepreneurs. During this period, though it is not clear that how female startup founders are discouraged, the women workforce faces more challenges as they are more likely to lose their jobs and be economically affected compared to men. Even if they could continue to work, the disparity in salaries and access to funding was exacerbated due to COVID-19. Funding to female founders dropped 31 per cent last year compared to 16 per cent for ventures run solely by males, according to PitchBook.
However, there is a global trend of investors who are betting on female founders. Women-led businesses took in US$46.3 billion in funding in 2019, according to data from PitchBook . That’s more than twice the year before and more than 15 times that in 2010.
Strikingly improved return on investment
In 2017, Patamar Capital launched a partnership with Investing in Women to foster the growth of women-owned SMEs in Indonesia, the Philippines and Vietnam. Just last month, its Beacon Fund received investment from Sasakawa Peace Foundation, moving closer to the initial target of closing a US$50 million fund. This reinforces the goal of building a steady investment market around women entrepreneurs in Southeast Asia.
“We are excited about the opportunity to tap into each other’s networks and expertise to push the boundaries of gender lens investing,” Shuyin Tang, co-founder and CEO of Beacon Fund, said in the statement.
Patamar Capital is not the only firm jumping on the bandwagon. This strategy has actually become an increasingly common approach to either institutional investors, angel investors to family offices.
Simply put, gender lens investing (GLI) refers to the integration of gender-smart indicators into the analysis and/or decision of the investment. It is often considered a part of impact investing strategy. Gender lens investors look at key indicators such as the proportion of women in the founding team, in the senior management, or whether the company offers products or services that are beneficial to women.
Global community Women in VC and 500 Startups launched 500 Female Forces last year, aiming to boost representation, resources and outreach for female founders.
Former lawyer Virginia Tan also founded Teja Ventures in 2018, contributing to the rising startup ecosystem of Singapore with a community of women entrepreneurs. She then established the global startup competition She Loves Tech in 50 countries, enabling more than US$250 million funding for roughly 5,000 female-focused startups.
In a kickoff event of the training programme about GLI last week, Tan said that in 2020, about 80 per cent of Teja’s companies raised new funding and the portfolio doubled in value.
Either with venture capital or developmental platforms backing, GLI helps deploy capital to where it is needed and bring return from the prospective growth. Moreover, taking up GLI will open new opportunities for investors to discover untapped innovative ideas and invest in social causes such as workforce participation balance, gender equality and the development of a diverse ecosystem for economic growth.
Evidence has shown that mobilising women’s equality in the workplace could fuel financial returns. A 2015 report from McKinsey said that companies in the top quartile for gender diversity are 15 per cent more likely to have financial returns above their respective national industry medians. In another global analysis of 2,400 companies conducted by Credit Suisse, organizations with women on boards yielded higher returns on equity and higher net income growth than those lacking a women representation.
“The higher the percentage of women in top management, the greater the excess returns for shareholders,” Credit Suisse noted in the report.
SoGal Ventures, a thriving female-focused fund based in Beijing, has generated an internal rate of return at 80 per cent since it was first launched in 2017. The VC has a total of US$15 million worth of assets under management. Among its 38 portfolio companies, 35 are founded or co-founded by women.
“There is gold in investing in women,” said Pocket Sun, co-founder of SoGal Ventures.
Evidence from BCG proved that startups having women in the founding team delivers twice as much revenue per dollar invested than those run with sole male leadership.
This is even more interesting when we see funds with female leaders. A report from IFC found that funds with gender-balanced senior managers generate 10 per cent to 20 per cent higher returns than unbalanced ones in both public and private markets.
In Southeast Asia, we have seen several prominent female names in the investment domain such as Minette Navarrete, President of Kickstart Ventures in the Philippines, Shuyin Tang, CEO of Beacon Fund and Vy Le, co-founder and general partner at DO Ventures in Vietnam.
Beyond women-led ventures
GLI isn’t limited to profits, returns but it also encourages more innovation and most significantly contributes to the social fight for gender equality on all fronts. Therefore, not only women entrepreneurs but also girls, women customers, and female employees, can be the beneficiaries of this investing model. GLI has gone beyond the scope of women-led startups.
Also Read: Levelling the playing field: How to build a home for women in tech
“There are three gender lenses that we use,” said Virginia Tan of Teja Ventures, “the first is that at least one founder is female; the second one is women as sole or disproportionate beneficiaries; the third gender lens looks at women as a full demographic, whether they are consumers, whether they are traffic, whether they are a mobile workforce, whether they are distributors.”
One of Teja Ventures’s earliest deals is with social commerce startup Frontier Markets in India. The last mile-assisted e-commerce addressed the gap of the underserved markets of 165 million rural households in India, including women. Its founder and CEO, a female entrepreneur, built up a network of tech-enabled women agents to market and sell commodities on their own across rural India.
“We saw that many women are micro entrepreneurs or village agents, a huge mobile and rural workforce,” said Tan. “In this case, women were not just beneficiaries by earning income, but they were also the drivers of revenue.”
By 2025, Frontier Markets anticipates expanding its personnel to 1 million rural women entrepreneurs, which could serve up to 100 million consumers with products and services ranging from agriculture, insurance and environment to drive economic empowerment in Bharat, India. The company will leverage its B2B2C e-commerce with support from digital marketing tools, AI-enabled digital training, and a B2C solution to power the digital services and bring a stable income for women across rural India.
More investment firms have also considered incorporating GLI into their investment processes for better supporting social well-being through gender-smart products that benefit women and girls. According to Wharton Social Impact Initiative’s Project Sage 3.0, gender-based investment raised US$4.8 billion in capital in 2019, more than twofold the amount raised in the previous year.
In another perspective, encouraging more wealthy women to invest in startups is another critical objective of GLI.
“We know that a very small percentage of women feel comfortable doing investing or are involved in investing,” Vicky Saunder, founder of SheEO, said at the kickoff event of the GLI training program. “So the root for our community is being in a relationship, instead of transactions. We want to meet the entrepreneur, watch them execute, give advice, and see where that goes.”
Brigitte Baumann, founder of Efino and GoBeyond Early Stage Investing, shared at the same event: “We learn while we’re making investments. For us, we call it group investing. We learned together and we invested together.”
This approach, however, is still unfamiliar in Southeast Asia’s nascent startup ecosystems.
“Gender lens investing is just the starting point to promote the concept of co-investment between local investors and overseas capitalists,” Minh Nguyen, co-founder of Vietnam’s ecosystem builder KisStartup, told e27. “The shortage of angel capital in Southeast Asia in general and in Vietnam in particular is tremendous and need to be addressed in multiple ways.”
Snapshot of gender lens investing in Southeast Asia
Even though GLI investors are still scattering, the opportunities of scaling up and growth have motivated them to take up this new investment approach, especially in Indonesia, the Philippines, and Vietnam. The three countries accounted for 80 per cent of GLI deal volume in the region, 85 per cent of which came from angel investors, according to a report co-published by Investing In Women and Value For Women in March.
“Increasingly, we see Southeast Asia as a popular place for a lot of global impact investors as it is accelerated by technology and the digital economy,” said Virginia Tan.
The COVID-19 pandemic has also been a boon to this trend as overseas investors can now meet companies, assess investment opportunities, and support post-investment all online.
Also Read: 3 leadership lessons for women in tech
“This has opened investors to the realisation that they can invest anywhere, and the result has been a massive growth in investing in different regions including Southeast Asia,” said Luan Tolosa, director at Spring Activator, a Canada-based incubator-cum-accelerator.
Leveraging on these insights, Spring Activator, Indonesia’s largest angel investors network ANGIN, Philippine early-stage impact incubator Villgro, Pakistan’s first female-led venture capital fund Invest2lnnovate, and Vietnam- based ecosystem builder KisStartup, are hosting a training program about GLI and cross-border investing for investors across Southeast Asia.
Organizing team of “Beyond 2021: Investing across borders and innovation”, starting from September 8th to 10th in South and Southeast Asia
According to ANGIN, 11 per cent of investments by impact investors in Indonesia are GLI deals, focusing on sectors such as food and agribusiness and financial services. Of which, 22 per cent are tech-enabled startups.
Identifying GLI as one of the four impact investing opportunities in Indonesia, David Soukhasing, managing director at ANGIN, shared with e27 his observation that investors are investing massively in more women entrepreneurs during the 2019-2021 period and from this year onwards, they will be raising dedicated gender funds in GLI.
In fact, the growth of gender lens investing in Southeast Asia has been exciting with the number of gender lens investment vehicles increasing by 77 per cent since 2018. While this means that there is more interest and capital available for women entrepreneurs, most of this is at the US$500,000 or even larger ticket sizes.
“Despite the presence of high-potential women-led enterprises, many of them are in the early stages, needing smaller investment ticket sizes to allow entrepreneurs to test and validate their models and establish a path to scale,” said Katherine Khoo, program manager at Villgro Philippines. “In the Philipines, while we are seeing more interest from angels, deals are few and far between, and risk appetite is still low.”
This is similar to Indonesia and Vietnam, where the financing gap for women-led MSMEs equals US$26.1 billion. Meanwhile, the gap in East Asia totals US$2.3 trillion, according to the report from Investing In Women.
Attracting more foreign capital comes as a promising option, but local regulatory frameworks and currency risks remain as the key challenges for foreign angels to invest further in Southeast Asia countries like Vietnam and the Philippines. Many entrepreneurs are now choosing to set up entities outside of their home countries (such as Singapore or the US) to navigate some of these challenges and to allow for easier transactions for follow-on funding from overseas angels or funds.
Nguyen of KisStartup and Khoo of Villgro echoed this insight as they said that when global investors approach the Asian market, they often encounter legal barriers, which can be effectively minimised through co-investing with experienced local angels or request to implement the deal in a third country.
Also Read: Women in tech: Carman Chan’s Click Ventures is one of the most consistent VC funds globally
“We have seen angel investors from outside the Philippines express interest, but investments are usually made along with local co-investors, whose knowledge of the market the cross-border angels rely on,” said Khoo. “We have directly facilitated deals from angels from Japan and the United States, for example, so there’s definitely a growing interest.”
But in the case of Vietnam, even though Vietnamese tend to trust the experience, network and resource of overseas investors, local angels here are still reluctant to co-invest, largely due to the entrenched mindset of “lone wolf”, or investors who prefer to source, analysis, or invest alone, Nguyen said.
She suggested the country promote the adoption of mentor và advisor culture among wealthy individuals, who can support new businesses with their expertise and then turn angels later on. This would help solve the shortage of early-stage capital for startups in general and female entrepreneurs in particular.
In addition, Tolosa at Spring Activator offers two lessons that ecosystem players in Southeast Asia can learn from. First, build relationships with established capital in communities like Singapore, London, San Francisco to create access to capital and act as role models. Second, develop the local investing community to be able to work and invest alongside cross-border investors.
“This will ensure the growth of a vibrant local investing community that will fuel the long term growth of the local ecosystem, and connect it well with global markets and capital,” noted Tolosa.
—
Image credit: 123rf, KisStartup
The post Investing with gender lens: Proven strategy to achieve 2x+ in returns appeared first on e27.