Gender Lens Investing: Insights From Project Sage 4.0

At its core, investing is an analysis of calculating risk and reward. Gender Lens Investing (GLI) is the purposeful commitment of funds, investors, and financial institutions to gender equity. It can show up a multitude of ways from the founders an investor invests in, to promoting internal gender commitments in an organization, to creating products and services that benefit women and girls to the advocacy of the advancement of ethical and cultural equality for women and girls. The trends, data, and leaders in this investment verticle are fascinating as it continues to emerge & create a ripple effect.

Ellevest defines GLI as "investing with an aim to?earn financial returns?and?address gender disparities" while Forbes states that, "gender lens investing is an investment thesis that seeks to turn the abstract idea of an investment’s benefit to women into a functional investment strategy ... with goals ranging from enhancing risk-adjusted returns to driving gender equality." There is no single, universal standard or what qualifies as a true GLI initiative. However, the Catalyst at Large, whom I call the "catalyst of catalysts" in the gender lens investing space, Suzanne Biegel, alongside her colleagues at Wharton Social Impact Initiative (WSII) have committed for years to dive in and generate useful, tangible and intentional data and conduct analysis of Gender Lens Investing, through a collection of reports, Project Sage 1.0, 2.0, 3.0 and now, just published in Dec 2021, Project Sage 4.0. I have waited for a weekend I was able to dive into the research and the wealth of insights from the report, and so this was the weekend to geek out on data by reading the "Project Sage 4.0: Tracking Venture Capital, Private Equity, and Private Debt with a Gender Lens" by Suzanne Biegel, Maoz (Michael) Brown and Sandi M. Hunt. What a read! Everyone should read the report, but here are 3 findings I personally wanted to highlight and 3 questions that are still needing to be pondered and acted upon.

Significant growth of gender lens investing funds

There has been a 3.5x increase in growth in gender lens investing funds in the last 4 years. This is incredible news for entrepreneurs, communities that serve women, and products made for women. There is traction and investments in this class of investments, let's acknowledge to countless funds and leaders making this happen.

In the first Project Sage report in 2017 (with 2017 data), there were 58 funds reporting they were gender lens investors and now, in 2021, there are 206, a 3.5x growth. That does not even account for some funds that were reported in Project Sage 3.0 that did not participate in 4.0, around 45, and those funds that did not have a clear gender lens investing criteria.

Emerging new funds are on the rise.

I particularly love this finding, as I have been in venture for 5 years now after being an angel investor for a total of 12 years and launching my own angel group, then syndicate, Stella Angels, and then entrenched in VC as an LP (Limited Partner) of Rising Tide Fund, part of an IC (Investment Committee) of Next Wave Impact partner of a micro-VC fund, Ad Astra Ventures. I know of other colleagues who have had similar paths. We all have our own unique path as an investor, but we are also all figuring it out as we go, generational knowledge is slim, but we hold onto all we can and honor those who came before us.

The factors that contribute to the increase of first-time funds are:

1. Women are spinning out of existing funds to launch their own funds. The valuable experience & wisdom is there, just working on building more investment opportunities for the industries, sectors, and markets they know best.
2. Successful women founders who are taking their exit, taking on the funder role, and investing in other founders. It's full circle.
3. Increased awareness of challenges female founders face has prompted gender advocates/investors to launch & manage their own funds.

III. Funds invest in a diverse array of sectors

The most prevalent sector invested in is Healthcare, Agriculture, and Fintech. These are technologies that impact our world in significant ways. At the intersection of technology, impact and gender is where most investment is happening right now, it's on-trend and needed. There is an opportunity to make innovations in these areas get to market with the investments by these funds. The future is bright.

In addition, 82% of these funds mention that they are also tracking impact through SDGs.

Call to Action around lingering gender lens investing questions.

You know when you read a report and it brings up discussions and questions you have had with multiple people but couldn't put your finger on it? Well, as usual, Suzanne's work ignites curiosity and catalyzes impact. So here are 3 macro questions (amongst so many micro questions) that have sparked my curiosity and thus, my own research continues. These questions, or calls to action, still need to be pondered and acted upon.

I. Is defining yourself as a gender-lens investing fund a benefit or a deterrent?

II. How can we standardize Gender Lens Investing?

III. How do we fill the gap between fundraising goals & current fundraising realities?

I. Is defining yourself as a gender-lens investing fund a benefit or a deterrent?

This is a hot topic for many funds, some female fund managers decide not to outwardly focus on female founders or femtech as to attract more LPs and showcase that the BEST deals happen to be women and other funds outwardly communicate their gender commitment. As stated in Project Sage 4.0, "the 2X Challenge may motivate funds to be more explicit in their commitments, partly in order to receive capital or technical assistance grants from 2X Challenge member investors." But, in the next sentence, the report states that they have stated that some funds have said that declaring gender commitments have "hampered their ability to raise capital". There are some funds that focus on gender integration instead of gender mandates. The more examples we begin to amass, the more informed we will all be. There are a variety of factors in influencing leaders of funds and those who invest in them to take a gender lens investing approach, so the discussion stays open, awareness that it is multifaceted is important, and taking action towards what is best for the fund and the entrepreneurs served is at the core.

II. How can we standardize Gender Lens Investing?

Standardization, in itself, is a hot topic because some view it as a curse that stifles innovation, and some view it as a uniting force to amplify good work. I choose to view standardization of Gender Lens Investing as a unifier and amplifier. Similar to how the UN SDGs have allowed impact investors to unite & communicate their value, standardization of Gender Lens Investing would benefit those who invest and those who receive investment, and those we all serve.

As Project Sage 1.0 mentioned, gender lens investing funds can be grouped by:

• Structures (from traditional venture and private equity to evergreen structures, collaborative angel funds, revolving loan funds, a film financing vehicle, and a purchase order finance vehicle)
• Industries (from consumer products, HealthTech to AgTech, medical devices, and CleanTech)
• Markets (from developed to emerging)

III. How do we fill the gap between fundraising goals & current fundraising realities?

This is unacceptable. Emerging fund managers and existing fund managers who are making a commitment to gender lens investing are just not able to raise the targetted amount of funding required. Similar to the gap between Seed and Series A for female founders, when institutional investors need to invest in startups, the gap is widening (this is from anecdotal evidence from conversations with founders & seed-stage investors). Institutional investors and private equity firms need to understand that investing the huge opportunity that these funds give them to make at least 60-70% more returns than a typical gender-neutral fund. This is from coalescing all of the opportunity data of gender lens teams outperforming their male counterparts, fund managers doing the same thing, here are the data:

This is the gap, so how do we fill it? It's about an $8B gap. That is a considerable gap to talk about, advocate to close, and champion to find solutions. Here are some that I have been a part of, so let's ideate from here:

1.Create SPVs that allow for Seed stage investors or angel investors to come into a fund that is raising money at a smaller unit price. I know it is harder to herd those cats, but it is worth getting the recognition of the investment thesis, gaining more champions, and thinking critically about who are the advocates that you can get checks from. This example is specifically from Mindshift Capital, a fund represented in the Project Sage 4.0 report.

Let's just admire, first, the rigor underneath this structure of collecting data that is relevant for gender lens investors to identify the funds that are taking the commitment and thriving! Since the minimum investment is set at $100K many angel investors who want to support and advocate for the fund management team and the entrepreneurs they serve, another investor lead an SPV (Special Purpose Vehicle) to have smaller checks to come into the SPV and then invest in the overall fund. What a testament to a powerful network.

2. The second strategy for funds to impart is doing the first close and then a second close to identify & highlight their warehouse deals and concretely showcase traction. It was evaluated that 40% of the funds being analyzed by the Projet Sage team and 60% were still fundraising. with So man institutional investors talking about gender equity and committing to investing, this should not be happening, so one strategy that many funds impart, and our team is learning this also on the ground through our involvement with VClab, many funds do a first close to bring in soft commitments, showcase traction of investing in promising warehouse deals and then go out to more investors for a second close. This has been happening in VC for a while, but for funds that are led by women, who are finding it even harder to close across all geographies and industries, this is a strategy they probably should use. Why is this important? Representation matters in the VC world, we are at 2% of all VCs are women, so to have investments being made by representatives of half of the population is just good business, AND other data suggests that women investors invest 2x as much in omen founders, AND gender cuts through all aspects of society, so it is a societal must to increase investment decision-makers to be women because all investments have gendered impacts.

3. Diversified levels and types of finding being deployed. Collaborative angel funds pool money to invest in the best deals that come through the group’s pipeline, which is a bit insular, but effective to attract the right startups to the group of investors whom all have individual investment thesis', yet typically, also a collective thesis. Revenue Based Financing, like the structures Founders First Capital has created or Torrey Project's V-RBF Fund .

Suzanne Biegel's work ignites curiosity and catayzes impact.

The emergence of the "Next Gen VCs", as discussed heavily by VC Lab, a VC accelerator, that has incredible resources, a passion-filled tea, and a curriculum that will hold you accountable, have you learn and network. Our team is so blessed to have been selected for Cohort 5. They mention, about the Next Gen VCs, that "these new fund managers are?masterfully marketers?of their firms and personal brand, they are also?deeply passionate?about having a?positive impact?on the world through their actions and their portfolio companies." Emerging fund managers who are women have a deeper challenge in being represented by less than 5% of all VCs, even though there is a growing number being trained and equipped, we have a ways to go for equality. What's interesting is that the diverse VC, or next-gen VC or the women in VC, see the world through a lens of impact, driving change, and democratizing the VC world one startup at a time through intentional investing to invest in the change we want to see in the world. And they invest for impact, making this world a better place

Referenced:

• https://socialimpact.wharton.upenn.edu/research-reports/reports-2/
• https://www.gendersmartinvesting.com/capital-connect
• https://govclab.com/
• https://nextbillion.net/how-to-boldly-implement-gender-lens-investing/
• https://www.forbes.com/sites/bhaktimirchandani/2019/01/03/want-to-discuss-gender-lens-investing-metoo/?sh=5ffcb6533ec6
• https://www.ellevest.com/magazine/impact-investing/gender-lens-investing