August 20, 2020

Funds are recognising their biases against women

Despite its massive growth, the gender lens investing market has not yet tapped its potential.

5 min read

The gender lens investing (GLI) market has grown by 61 percent globally since 2018. Today, there are as many as 192 gender lens investment vehicles, with 20 funds that have South Asia as a target investment destination. In fact, our most recent study—Gender Lens Investing Landscape—found that South Asia has raised more gender lens capital than Southeast Asia and East Asia.

While there are a few sectors such as healthcare, education, agriculture, or femtech, that receive a higher quantum of gender-oriented funds globally, the overall purview of GLI is quite broad. Currently, gender lens funds are present in more than 20 different sectors, covering all the 17 Sustainable Development Goals (SDGs).

GLI is also a factor that cuts across all asset classes—including private equity and debt, as well as public equity and fixed income. Like impact investing, it is a lens or approach that can be applied across sectors as well. Perhaps it is more easily understood as a type of impact and thus connected to the impact investing sector, but it has a significant presence in sectors outside of impact investing as well, such as technology and the ‘she economy’.

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Related article: Corporate India needs to do more for women

The meaning of gender lens investing has broadened over time

When the idea of GLI first came about, it focussed specifically on getting capital to women entrepreneurs. The reason for this was simple—there was (and still is) a disparity between the number of female and male entrepreneurs who get funded, with women-led enterprises capturing less than three percent of global venture capital in 2017. Soon after, the scope expanded to also consider the number of women in the workforce.

Today, the definition is significantly broader. GLI looks at women in the value chain, as suppliers, partners, or even consumers. This could mean products and services designed to meet the specific needs of women, for instance, women’s health and well-being. It could also mean considering gender as a factor in the marketing, sales, and distribution of a product or service, for instance, organisations that leverage women’s networks and community groups for distribution.

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In the last couple of years, we’ve started seeing a new trend: Funds are looking inwards—at their own teams and how they source deals—to ensure that their processes are inclusive, as well as cognisant of biases against women. Currently, women hold only about 10 percent of all senior positions in private equity and venture capital firms globally, and nearly 70 percent of teams are all male. The shift in focus of looking inwards has been driven primarily by investors and DFIs, who, having challenged their potential investees to put in place gender-equitable policies and practices, have realised that they must walk the talk themselves.

The definition has broadened, but the intent is the same

With the definition of GLI expanding beyond women-owned businesses, there could be a fear that this is a way around supporting women entrepreneurs, and that it dilutes the goal of deploying capital towards the empowerment of women. In our experience, however, this is not the case.

It is true that it is difficult to find women-owned business; they don’t show up in the same way as typically male-driven organisations would, and there are a host of structural issues behind that. But even for funds that qualify for GLI based on other conditions—for instance presence of women in the value chain—there is a growing awareness of, and commitment to, gender and diversity.

Investing as a universe is one of the less-diverse industries, with very few female investment professionals.

These investments almost always come with an assessment of the investee’s leadership and board composition, or even their HR policies—from sexual harassment, to promotion and pay, to maternity and paternity leave. Therefore, while the starting point for GLI has expanded, it has not lost the intent to create equitable companies. That said, it is very important to get capital to women entrepreneurs, and there are many funds still focussed almost entirely on that.

The focus on their own team composition and internal processes by investment funds is also a welcome development. Investing as a universe is one of the less-diverse industries, with very few female investment professionals. However, female leadership is critical, especially at GLI funds. Women are more likely to have the networks to find women entrepreneurs, or female-oriented products and services to invest in. Additionally, women entrepreneurs also feel more comfortable engaging with funds that are led by women—they feel they are better understood by the funder. This can give funds a competitive advantage as they try to source investment opportunities.

Yellow Dog in South Korea is a good example of this. Founded by a woman, they started as a regular venture capital (VC) fund. They soon found that they were attracting more women entrepreneurs than any other VC fund in South Korea. The women entrepreneurs told them that this was in part because they felt that they could be understood by the senior Yellow Dog investment team, which is largely comprised of women. This pipeline and portfolio of women-led investee companies created a competitive advantage for Yellow Dog in terms of sourcing investment opportunities. They have now created a specific gender lens fund, which has allowed them to expand their investment universe into Southeast Asia as well.

a restroom sign of a man and woman against a green background-gender lens investing- picture courtesy: Pixabay

Currently, women hold only about 10 percent of all senior positions in private equity and venture capital firms globally. | Picture courtesy: Pixabay

Beyond investing: Gender lens as an implementing tool

We are also seeing the adoption of a gender lens as an implementing tool, especially among DFIs, development agencies, and large foundations. For instance, we are currently advising a large European development agency on a strategy for migrant workers, and a significant component of that project is focussing on impact and solutions for women. Development agencies are beginning to provide technical assistance to funds to integrate a gender lens, and are setting standards and frameworks around GLI that these funds can follow. Some investors also have reporting requirements around gender as a condition for them to invest.

Because these institutions control capital and make key investment decisions, the adoption of a gender lens in their processes could act as a lever for change across capital markets, and mainstream the application of a gender lens in investment decisions. Some of this is already happening: Recently, we saw companies in Japan being called out by foreign investors for having all-male boards.

Related article: Making your programme design more equitable

COVID-19 is impacting GLI in different ways

We know that the COVID-19 crisis has impacted investment activities in general, with people reassessing risks and investing selectively. While this is the case across the board in the private markets, within the gender space, we’ve seen a split. Some capital holders have put investment activities on hold because of the upheaval caused by COVID-19; others, however, are looking at the crisis as one more reason to double down and use gender as a lens in their investments.

This offers a range of opportunities, from fighting gender-based violence to supporting women in caregiving and healthcare, to investing in diverse teams to ensure organisational resilience. One of the lessons we have learned from COVID-19 is the importance of working and organising together globally, and collaboration tends to be a strength of women leaders.

The current shape and size of the current GLI landscape might not be perfect, but initiatives such as the SDGs and the 2X Challenge are setting global targets against which people can ask themselves: What needs to be done? What am I not doing? What changes do I need to make? This is a good place to start. As development agencies and DFIs continue to establish metrics and frameworks for GLI, we will be able to build the GLI ecosystem. That would serve as scaffolding for a more equitable world, and once that is built, and we’re closer to equality, we’d be operating from a much better foundation.

At the AVPN Virtual Conference 2020, Raya Papp spoke about building the case for gender lens investing across Asia.

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Ahmed Aslam-Image
Ahmed Aslam

Ahmed Aslam leads investment opportunities from sourcing to deal closure at Sagana, and provides strategic advice to the portfolio companies focussed on business development, fundraising, key-hiring decisions, gender and diversity, financial management, and governance. Ahmed has more than six years of management consulting experience. He has worked at McKinsey’s Private Equity practice across Asia, Europe, North America, and Australia. He has served a diverse set of clients including impact investors, private equity funds, venture capital funds, institutional investors, and large corporates.

Raya Papp-Image
Raya Papp

Raya Papp is Founding Partner at Sagana, a global impact investing and advisory firm focusing on gender-smart investing, health, education, and climate. Previously, Raya was co-head of LGT Venture Philanthropy Asia Pacific, based in Singapore, managing their investment portfolio. She also has 20 years of experience in corporate finance and investing at Morgan Stanley, Deutsche Bank, and Thomson Reuters. She holds an MBA degree from Harvard Business School and a BS degree in systems engineering from University of Virginia.