Numerous studies released in conjunction with International Women’s Day (IWD) last week underscored an acute lack of female representation on the boards of listed companies.
The issue of gender disparity appears even more pronounced when it comes to accessing capital: a recent report by DealStreetAsia revealed that of the $25.75 billion in private capital raised by start-ups in Southeast Asia last year, only 17.2% went to those with at least one female co-founder. While this is up from 16.5% in 2020, progress appears to be moving slowly.
“There is still a lot of work to be done to ensure that the best women founders have access to capital and I applaud those tracking these figures,” Herston Powers, founder and managing partner of Singapore-based VC, 1982 Ventures, told Finance Asia.
“It is very concerning that start-ups founded solely by women, appear to have the most trouble accessing private capital based on these findings,” he added.
The report found that start-ups with all-female founders raised $159 million – a mere 0.6% of the total fundraised in the year.
One explanation for the financing gap is a tendency for women entrepreneurs to seek lower levels of financing compared to men, and to be less likely to seek formal or external sources of financing, explained Jennifer Buckley, founder and managing director of women-led private equity firm, SWEEF Capital.
However, that does not mean that these entrepreneurs do not need access to capital to grow their businesses, she told FA.
SWEEF is an independent, female-led private equity firm that span off from US-based emerging markets investment firm, SEAF, last year. Backed by Danish pension fund Pædagogernes Pension (PBU), SWEEF invests with diversity in mind, funding not only female entrepreneurs, but also companies operating in sectors with higher numbers of female employees, and companies providing products or services that address the unmet needs of women.
More female decision-makers
Advancing the representation of women within PE and VC firms will also go far in addressing the gender funding gap, Buckley believes. Women currently make up only 11% of senior investment decision-makers in PE and VC firms active in emerging markets, she said.
“Women partners invested in almost two times more women-owned companies compared with their male partners, giving women more opportunity to grow their businesses and create jobs,” she said, citing a report by the University of Sydney.
Besides the inherent merit that comes with improving diversity in PE and VC space, Buckley cited data from the 2019 book, Impact Imperative, which reveals how gender-balanced investment teams perform 10% better than their imbalanced peers. The data also indicates that these teams construct portfolios that comprise 30% more start-ups that eventually succeed in listing, or end up being sold for more than their initial capital investment.
Additionally, VC-backed companies run by women tend to yield a 35% higher return on investment for financiers, and their efficient use of capital can result in a 12% higher revenue growth trajectory. In fact, such data shows that overall, firms with all-female founder teams demonstrate 63% better financial health.
Despite this evidence, female-led investment teams such as SWEEF are often penalised through the application by mainstream investors of traditional metrics of evaluation. Either by applying criteria that is better suited to mature funds, or mistaking accrued track-record for the debut strategy of a first-time manager, these teams are often subjected to misperceptions that ultimately impact the amount of capital that they receive.
“The slow progress in funding has contributed to high turnover rates for female fund managers across public and private market vehicles. In 2020, turnover rates were roughly 42% for women compared to 27% for men,” Buckley said.
Last year, SWEEF successfully exited the first investment made by its Australian government-backed gender-focussed fund – a stake in Vietnamese maternal and family hospital group, Phuong Chau Hospital.
“Our investment and eventual exit demonstrate that investing in women entrepreneurs delivers both financial, social and investment returns,” Buckley said.
Cause for optimism
However, there is cause for optimism and 1982 Ventures’ Powers believes that the gender finance gap can be narrowed faster in Asia than in other parts of the world. He highlighted how Southeast Asia is already ahead of the US with respect to private capital raised by teams with at least one female founder, at 17.2% compared to 12%.
“As a young VC and PE ecosystem, Southeast Asia does not have impenetrable legacy structures and there are many talented angel syndicates, fund managers and LPs (limited partners) aiming to close the female funding gap in Southeast Asia,” he said.
As more evidence supporting “gender lens investing” emerges, the case for mainstream capital providers to channel funding into female-focussed PE and VC funds will strengthen, Buckley suggested.
A gender lens report by Wharton and consultancy firm, Catalyst at Large, showed that the number of gender lens funds grew from 138 funds in 2020 to 206 funds in 2021.
As a fast growing and diverse region with high levels of women entrepreneurship, more funds should be channelled into Southeast Asia, Buckley said.
