Gender lens investing: why we’re taking a closer look
Written by Hebe Foster, Platform Associate — Mercy Corps Ventures
“If we can solve the first three Sustainable Development Goals with successful gender mainstreaming, we’ll solve the rest of the problems the world is facing”.
Vandana Shiva - Scholar & Author. Lecture at Paris School of International Affairs, 2019
The Status Quo
The venture capital system is set up to miss or exclude female founders. To build an equitable world as impact investors, what do we need to do to change this?
We’ve observed and heard from our partners in the ecosystem that many female founders are close to being investment ready but are missing the networks, feedback, and support they need to get over the final funding hurdles. Globally, only 2.3% of venture capital went to female-led startups in 2020. Africa exceeded this number at 18% in 2021, but these figures show that capital is still widely poured into male-led startups, missing the plethora of female talent, perspectives and solutions needed to overcome today’s most urgent challenges.
In this environment, forward-thinking funds, foundations, and philanthropists are increasingly exploring a gender lens investing (GLI) approach. GLI is a strategy or approach to investing that takes into consideration gender-based factors across the investment process. The goal is to advance gender equality and ensure more balanced investment decisions.
This strategy broadly covers two categories:
Investing with the intent to address gender issues or promote gender equity, including by:
- Investing in women-owned or women-led enterprises
- Investing in enterprises that promote workplace equity (in staffing, management, boardroom representation, and along their supply chains); or
- Investing in enterprises that offer products or services that substantially improve the lives of women and girls.
And/or investing with the following approaches to inform investment decisions:
- a process that focuses on gender, from pre-investment activities (e.g., sourcing and due diligence) to post-deal monitoring (e.g., strategic advisory and exiting); or
- a strategy that examines, with respect to the investee enterprises:
- Their vision or mission to address gender issues
- Their organizational structure, culture, internal policies, and workplace environment;
a) Their use of data and metrics for the gender-equitable management of performance and to incentivize behavioral change and accountability; and
b) How their financial and human resources signify overall commitment to gender equality.
Building the GLI ecosystem
The term ‘gender lens investing’ has historically caused some trepidation, especially among more established funders in the impact ecosystem. The evidence base for GLI remains limited, and collecting gender-disaggregated data at portfolio company level is still not the default. But groups like Gender Smart Investing are working to change that. Research done by Project Sage in 2021 highlighted that fund managers’ efforts to promote their GLI work were at best ignored, and in some cases actively damaging to their fundraising. There are lingering negative preconceptions around GLI — but pioneering fund managers like Finca, Janngo, and Root Capital are out to show that GLI funds are not only deeply impactful, but can also drive strong commercial returns at scale.
The research we have is clear — a gender-responsive approach helps improve services, boosts impact outcomes, and increases financial returns. From an investor’s perspective, the value of gender-responsive investment decisions can manifest in various ways:
Our Approach
At Mercy Corps Ventures (MCV), 50% of our portfolio companies are female-founded. Of the 5.7 million customers served by our portfolio companies in 2021, 50% of them were women. And internally, nearly half of our team is female. These numbers are above the current industry standard, but we recognize we can always do more and be intentional in our approach.
We know that our position as an early-stage investor with the ability to deploy capital at speed, as well as providing high-quality non-financial support, we have significant opportunities for intervention. Startups at this stage are in an excellent position to integrate gender considerations into their product/market fit and business model design, which could scale their gender-responsive impact significantly over the longer term. At the same time, these startups are stretched thin in terms of resources, making it vital that we offer robust frameworks and support that can enable GLI improvements for busy founders and small teams.
A gender lens approach is also critical to addressing the core focus of our megatheses; climate disruption and financial exclusion. We know that women are often most affected by climate disruption and financial exclusion, but at the same time are disproportionately involved in forefront efforts to respond to climate impacts and create adaptive mechanisms for their communities.
As such, we are currently looking to integrate GLI approaches across our investment processes, from pipeline and ecosystem building, through due diligence and investment screening, to our post-investment support offering. It often feels like a balancing act:
“What I’m trying to figure out is how to get pilots off the ground while keeping a gender lens in focus”
Ken Kou, Fintech & Innovation Lead, explains.
As we develop and refine our own GLI approach, we want to hear from others in the sector, and what questions and challenges you are facing. We’d like to offer our support for others looking to expand pipeline initiatives and ecosystem support for female-led/focused ventures, and we are keen to explore partnerships where possible. Taking a gender lens investing approach is complex, and requires commitment from players across the ecosystem. But it’s worth it to increase the depth and breadth of the impact we all want to see.
Themes raised by team
“We really need to highlight the different ways to think about gender for our portfolio companies — on boards, as employees, within customer segmentation, or in creating a product/service for women”
Lillian Alexander — Senior Impact Advisor
As part of our work scoping a GLI approach, we ran one-on-one interviews with all MCV team members. Through these interviews, we identified key themes pertinent to our mission to embed a gender lens into our work, laid out below.
Thinking strategically at all stages of our investment process
Too often, GLI is seen simply as an effort to invest in more female entrepreneurs. But the field is far larger than that, and even as a relatively small fund we have the opportunity to make a difference across all our different workstreams. This includes incorporating gender-focused questions within our due diligence process, and building gender into all our impact measurement processes, whether through our pilots, pipeline initiatives such as investment readiness workshops, or research pieces. In particular, we’re thinking about how we could build on our experience running pilots to bring in a clear gender focus, supporting ventures to responsibly test products or services with female customers and then adapt them, to better serve their user base and expand market potential and sustainable impact. Most importantly, we have to think broadly about how our portfolio companies can consider gender — whether that is women as board members, as employees, as customers, or as participants in the value chain.
Diagnosing the challenge at pipeline stage
Our portfolio is 50/50 female/male founded (i.e. with at least one female on the founding team), but we’re still only seeing 18% of companies led by a female founder in our investment pipeline, which means more work needs to be done, both to reflect on our biases and how we’re actively sourcing companies and generating leads, and to support female-founded ventures at pre-investment stage. Our team has done a lot of work to expand our pipeline with respect to female founders, especially in the Africa region, by undertaking desk and in-market research to uncover more sources of pipeline companies. But our work also needs to be more creative: our team’s assessment of tens of pipeline companies has indicated that male entrepreneurs are much more likely to receive the very small cash injections (from family and friends, or local lenders) that bring their MVP to a stage where we can currently consider investing.
As some of our team members put it:
“Ultimately, we need to structure financing that is willing to be riskier. Because women struggle to attract capital, many of the ventures we come across we cannot work with — they’re too early, have too little traction, or haven’t had access to the early-stage capital they need.”
Sam Orji — Investment Analyst“Why aren’t we talking more to female founders in our portfolio about how we might organically find these people?”
Lillian Alexander — Senior Impact Advisor
There is sometimes wariness around introducing proactive diversity, equity and inclusion criteria into our due diligence process, but also a recognition that when we’re screening 200+ deals a quarter, we can always optimize on this process, and committing to gender-responsiveness is one way to do that. So we’re thinking about how we can leverage our networks and our position in the ecosystem to run initiatives and share learnings that can help drive that change.
Embedding GLI into our investment thesis
Reflecting a team-wide commitment to gender lens investing, we have collaborated to weave gender throughout our investment theses: climate resilience and financial inclusion. This year we are seeking ways to pilot innovative new technologies at the intersection of gender and climate (complementing other calls for innovative finance mechanisms like this). The gender/climate nexus is an emerging area, and for us the trickiest bit is working out how a gender lens can be applied to the types of models and sectors we look at for investment. We recognise, though, that our focus on climate resilience and financial inclusion gives us a good platform to focus on women, who are often un/underbanked as well as at the forefront of climate change adaptation efforts.
Building a reflective team
Our best efforts to integrate gender will be far more likely to fail if our team is not diverse and representative as well. We use our personal networks to share job descriptions, which can bring us excellent candidates, but does not necessarily widen the net beyond people who are similar to us. So while it’s partly about the desire for more gender representation in our team, it’s also about the networks that we tap into for recruitment. We’re thinking about many factors here, including geographic and educational diversity alongside gender, and considering how we could use the opportunities we do have (via hiring of consultants and interns) “to nurture talent and develop a pipeline of ‘rock star’ hires” as MCV Managing Partner, Tim Rann, puts it.
Prioritizing sustainable growth in our portfolio
On applying a gender lens to customer insights: “People want to check these boxes off and get it done — but actually if you don’t know half your customer base, especially in financial products, that’s a real barrier.”
Eva Hoffman — Consultant
As MCV’s Senior Impact Advisor, Lillian, put it, “all of who we are as a fund comes from our portfolio companies”. Our Venture Platform works to support portfolio companies to grow and scale as sustainably and impactfully as they can — so we need to work towards being productive partners and champions for this growth, without forcing it. We can see that the companies we’re investing in are starting to think about gender in the same way as they think about climate change: looking to customer segmentation and insights to drive user growth and uptake in a changing environment. We can work to support them through this transition, since over the longer-term, it will help them scale. Of course, as an impact investor looking to help our ventures scale, one thing we work hard on is support for ventures to secure follow-on funding. So going forward, a key question for us is “since female founders find it harder to raise follow-on capital, what can we do for our female-led ventures?” Lillian Alexander — Senior Impact Advisor.
Our goals
“I wish we could just take a step back and review all our decisions and processes, making sure this effort is collectively owned.”
Tim Rann — Managing Partner
In the coming year, we will be integrating a gender lens investing approach across our investment lifecycle. This will include:
- embedding gender across our theses to ensure we reflect important gendered aspects of climate resilience and financial inclusion;
- rigorous due diligence on the gender impact of a venture’s product or service;
- targeting female-led enterprises for investment;
- post-investment support to enable ventures to integrate gender considerations into their work; and
- driving gender-focused impact management and targets.
We are taking on this GLI approach because we know this improves ventures’ financial and impact returns.
One major area of focus for us this year is supporting early-stage ideas for financial inclusion. In seeing the immense potential for high-impact real-world use cases for blockchain, crypto, and digital assets, we’re building on the pilots we ran in 2021 and launching the Crypto for Good Fund. We aim to align this fund with our expanding gender lens investing (GLI) approach, enabling solutions from startups that will sensitively and effectively incorporate gender considerations into team culture, product design, implementation, and more. The Crypto For Good Fund launches on 15 March offering $1 million in funding looking to pilot blockchain solutions in emerging markets. We are keenly welcoming applications from female entrepreneurs and/or from startups focused on a female user base.
Inspiration and partners
- ICRW Global Advisors, a leading strategy consultancy supporting organizations to become more gender equitable.
- Cartier Women’s Initiative, an entrepreneurship program supporting female entrepreneurs looking to have deep social impact through their work.
- Value for Women, whose support for businesses looking to integrate gender equity creates improvements on both inclusion metrics and business outcomes.
- Suzanne Biegel, who is a pre-eminent expert in gender-smart investing and looks especially at climate resilience
- The Boardroom Africa, who could provide guidance on diversification of boards
- The Criterion Institute, who work to address power, expertise and bias in investment strategies.
- Mara Mentor, whose mentorship programme could be inspiration for other tailored support to female founders.
- Lionesses, whose in-depth understanding of female entrepreneurs in Africa could provide vital insights for work with African-based companies.
- GlobalInvestHer, providing resources and signposting for access to capital.
- Backstage Capital, whose work with under-represented founders has given them wide expertise in addressing lack of diversity.
- Julia Elliott Brown, a UK-based equity fundraising expert working exclusively with female founders.
- The Gender and Development Network, who have a wide range of expertise in their network and share best practice around gender and development.
- CARE International, who have already produced various frameworks and screenings for gender.
