Changing the Gatekeepers: Why Female Fund Managers Are the Key to Unlocking More Inclusive Capital
By Melanie de Nysschen, Program Manager at Southern African Venture Capital and Private Equity Association (SAVCA), and Yeabsira Zewdie, Associate Director at MiDA Advisors
The doors to financial empowerment and inclusion are typically shut to women entrepreneurs. Greater access to capital could help us unlock them, yet women comprise a small portion of fund managers in the private equity sector — the people who serve as gatekeepers to capital for small and medium-sized enterprises (SMEs). The International Finance Corporation found that only 11% of senior investment professionals in emerging markets are women. And the situation is no better in developed markets, where only 10% of these professionals are women.
Unfortunately, the statistics for female representation among fund managers are not improving. But other statistics offer more reason for hope: Female funders are twice as likely to invest in startups with at least one female founder and three times as likely to invest in female CEOs. (Goldman Sachs also found that female-managed funds typically outperform their male-managed counterparts.)
As these numbers demonstrate, empowered women empower women. At the Women Empowerment Mentoring and Incubation Fund Manager Programme (WE>MI), we’ve seen this in research findings, and we’ve witnessed it firsthand with our cohort members and our female colleagues. Women want to invest in each other. We know how hard it can be to gain access to the world of investing, so once we get established in the industry, we want to pay it forward.
Both of us have encountered the gender-specific obstacles that prevent women from advancing in this sector. An Ethiopian-American, Yeabsira spent her formative years on the African continent, immersed in the day-to-day challenges that female entrepreneurs and businesswomen in her community faced in their efforts to lead and contribute to the economy. Melanie’s time in the investment banking industry opened her eyes to how hard it is for women to succeed in the financial sector — even in a fairly progressive country like South Africa — and the impact that external factors like marriage, children and a supportive family can have on a woman’s career.
In our professional experience, we’ve both worked with female entrepreneurs and have seen how they can use small amounts of seed capital to grow successful SMEs. Imagine what women could do if we played a larger role in distributing capital to female founders, helping them scale and bring more products, services and jobs to the market with women in mind.
In interviewing the female fund managers from South Africa, Namibia and Botswana who constitute WE>MI’s inaugural cohort, we learned that their biggest challenges revolved around access to three core elements: capital, networks and mentorship. Essentially all of these women are leading startup funds, and 80% of them are first-time fund managers. We’ll explore these challenges below, and discuss ways programmes like ours are helping to address them.
Challenge 1: Raising Capital
First and foremost, many female fund managers have trouble raising capital, the lifeblood of their businesses. Only 2–3% of capital flows to women fund managers across both private equity and venture capital. Limited working capital drastically diminishes their ability to invest, scale and grow — making it that much harder for them to succeed. This challenge is likely driving the high turnover rate among female fund managers, which one study measured at 42% in 2020 (compared to 27% for men). The pathway to fund viability is a long one, and without sufficient access to capital, we’re unlikely to see more women owning and managing funds.
Challenge 2: Access to Networks
A lack of access to capital goes hand in hand with the second obstacle: access to networks. Men manage most investable money, and they typically gravitate towards male fund managers. They tend to invest within their networks — powerful, capital-rich networks that most women don’t have. Some of our cohort members shared how challenging it can be for female fund managers (especially newer ones) to gain access to asset owners, or identify and afford the investment consultants who can make connections to decision-makers. In the world of finance, especially in emerging markets, women face a significant uphill battle to overcome gender stereotypes and break into these male-dominated circles.
Challenge 3: Mentorship
All of this contributes to a lack of diversity in the sector, and therefore a shortage of female mentors for women fund managers. Some of our cohort members found that the male mentors they worked with did not understand the unique obstacles that women business owners face, especially in the private equity industry. For instance, many of these female fund managers have to juggle their priorities as the primary caretakers of their households with the demands of leading a startup. Multiple cohort members mentioned collaboration with like-minded mentors as a critical element of success, with one noting the significance of community in helping women fund managers to “[feel] less alone and lost…and share the load and the stress that comes with starting your own business.”
Exploring Solutions to the Fund Manager Gender Gap
Despite these long-standing challenges, our work has shown that effective solutions do exist. For instance, technical assistance can help increase access to capital, networks and mentorship, especially when it’s tailored specifically for women-owned fund management firms. Their funds are generally smaller than average, and technical assistance service providers rarely assist those at smaller scale. They are also often still in the process of trying to build a track record, especially if they are coming from an adjacent career (e.g., financial services, accounting, investment banking) but have never managed their own fund — a fairly common situation, given how few female fund managers exist. These women can’t afford the technical assistance that could see them through this initial make-or-break phase of establishing their investability.
To help provide this support, we launched WE>MI in June 2021, kicking off a 13-month mentoring and incubation program that provides technical assistance, alongside an investment support facility to aid in fundraising preparation and outreach, to increase the number of investable women-owned-and-managed funds in Southern Africa. In helping these women to hone their businesses and increase their access to networks, mentorship and capital, we open doors for them to invest in other women-owned enterprises, driving equity forward. None of this would be possible without the United States Agency for International Development (USAID’s) support for the program, which will help create a more inclusive economic ecosystem — and provide returns that greatly exceed the initial investment. By investing in programs like these, financial supporters can ensure that their funding (which we know is both valuable and limited) goes directly to where it’s needed.
In the few short months that we’ve worked with them, our cohort’s drive, passion and commitment to succeed has inspired us. These women business owners have demonstrated extraordinary resilience: Some have contracted the COVID-19 virus or lost partners, family and friends to it. Others had investments that were impacted by South Africa’s social upheaval in July 2021. In response to these crises, we offered multiple opportunities to postpone programming, and each time, every single facilitator and participant said no. They love their countries, they love their communities, and they insist on seeing things through: It’s clear how seriously they take their role in creating solutions to the multiple challenges facing their communities and the broader world.
But most importantly, these women leaders demonstrate both an incredible vulnerability and a fierce intentionality in their efforts to catalyse extraordinary change in the private equity industry. They share freely, eager to learn from each other and quick to celebrate one another’s accomplishments. There is no feeling of scarcity, and they believe in their fellow cohort members’ successes as much as their own. While we have been intentional about creating channels for collaboration, their dedication and engagement have fueled the work we’ve done together.
By investing in these female fund managers, we are opening multiple doors for women at all levels of the economy in Southern Africa. And once a door is open for them, they will hold it open for others.