Why We Need More Women Investing In Women
The need for women to take charge and become investors has gained serious urgency, and this will shape the future of gender equality. As the world prepares for life after the pandemic, we have a unique opportunity to unleash a potent yet latent resource to achieve gender equity: women investors. And the most effective catalytic agents that women investors can empower to drive gender equality are female fund managers.
The Need
Given entrenched gender norms, many women grew up believing they are not adept at investing. According to a 2017 Fidelity Investments survey, 9% of surveyed women investors thought they could outperform men. However, the company’s analysis found that, on average, women investors slightly outperformed their male counterparts.
Yet, traditionally venture capital funds are predominantly male. A study by IFC, Oliver Wyman and RockCreek found that in emerging markets' private equity and venture capital, excluding China, women account for only 8% of senior investment professionals, and they account for only 10% in developed markets. Their research found that almost 70% of senior investment teams are composed solely of men, with only 15% of teams being gender balanced. Clearly, female fund managers, especially in leadership roles, are underrepresented globally.
So why does this matter? Because the gender composition of investment decision makers significantly impacts the allocation of investment capital. Both our organization’s experience and empirical data suggest that women are more likely to invest in companies that are led by, supplied by or cater to women. The obvious reason for such a trend is that women have an innate understanding of what they want as consumers. Additionally, women are increasingly becoming decision makers for their family consumption decisions. Furthermore, in my experience, women founders often find it less intimidating to pitch to women investors, with the latter being perceived as being more empathetic.
It is widely documented that the reason most woman-owned businesses do not get funded by venture capitalists is because of conscious and unconscious gender biases. If the investors are mostly men, it is a lot more likely for the decision makers to invest in the type of people they know best — other men.
The #MeToo movement shined a spotlight on gender inequity, and there was an increase in the number of venture deals funding women founders. But the pandemic has reversed this trend. Data by Pitchbook and NVCA found that although total deal value for companies led by female founders hit a record in 2020, the number of deals dropped 12% compared to 2019.
This decrease in gains is made worse by the double whammy effect of the pandemic on steeply declining labor participation rates of women globally and the uneven heavier burden of Covid-19 on women.
The Opportunity
Despite these worrisome trends, there is a silver lining. It is related to demographic trends.
As per a July 2020 report from McKinsey, in the U.S., women control a third of household financial assets, amounting to $10 trillion. This amount is expected to increase over the next decade, however, with women forecast to control much of baby boomers’ $30 trillion in financial assets.
The report also noted an increase in financial savviness among younger affluent women, with 30% more married women being financial and investment decision makers compared to 2015.
Therefore, there is a real opportunity to encourage this universe of women to take center stage as investors.
The Solution
We need a two-pronged approach to capitalize on this historic opportunity, which can potentially accelerate the march to gender equity by unleashing the potency of capital allocation:
• Proactively educate women to become investors to take charge of or at least participate in investment-related discussions.
• Encourage women of means to invest in women fund managers, who in turn can invest in women founders and women-owned businesses.
The pathway to gender equality could not be clearer, and the calling could not be more urgent and impactful. We need more women investors who invest in women fund managers, who in turn invest in more women founders.