Proponents of gender-lens investing say it’s a solution to economic inequality. But does it really shift the status quo?

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Countless studies say the same thing: women and non-binary people’s businesses yield higher returns on investment, in more ways than one. 

A Boston Consulting Group’s study on startups, for instance, found that though the women-led startups received less capital, they generated 10 per cent more revenue over five years. For every dollar the women’s businesses were funded, they generated 78 cents, while male-founded startups earned 31 cents. 

Research also shows that women and non-binary-led businesses benefit their communities more. When women have more financial freedom, they invest in those around them. Women tend to spend more of their income on education and health which benefits families. Their economic participation speeds up development, contributes to alleviating poverty, and reduces inequalities. With 38 per cent of the world’s social enterprises led solely by women, they are more likely to be social entrepreneurs than owning and leading traditional businesses.

Even though these benefits of women and non-binary entrepreneurs are apparent, there is a clear gap in investments in businesses based on gender. Crunchbase data found that female-only founded companies raised $6 billion in venture funds in 2019, while male-only founded companies raised $195 billion. Crunchbase also found that total funding to female-led startups declined from 2.8 per cent to 2.3 percent in 2020. 

GenderSmart, a global community dedicated to moving capital to advance gender equality recently released a report examining how financial actors can do just that – the Gender Lens Investing State of the Field 2022. 

GenderSmart defines gender-smart investing as acknowledging that financial systems engage with men, women, and gender diverse entrepreneurs differently and using finance as a tool for gender equality.  

GenderSmart recognizes that “financial systems engage with and benefit men and women differently, and particularly women of colour, and are actively committed to using finance as a tool to promote gender equality.”

Gender-smart investing requires individuals to apply a gendered analysis to their investment design, whether it influences their personal investment portfolios or their company venture funds. 

But how much investment can ensure women and nonbinary entrepreneurs have consistent access to financing? Can investments to launch their startups and scale their businesses prevent the same barriers from keeping them stagnant?

Future of Good spoke with analysts, entrepreneurs, advocates, and academics to explore how or if the financial and political system can change to promote gender equality in business.
 

The goal of gender-smart investing

GenderSmart is a community of 2,500 investment managers, wealth managers, banks, donors, development agencies, foundations, development finance institutions, development banks, and other finance actors in more than 50 countries. Of the 646 investors surveyed about their gender-smart funding priorities, 71 per cent said they were focusing on financial and digital inclusion to increase women’s access to cash flow and digital reach to make up for the pandemic’s market disruption.

Why is a gender analysis necessary for the existing investment process and business world? 

Sana Kapadia, the head of content at GenderSmart says investing with a gender lens will provide more capital for women and non-binary entrepreneurs.

The pandemic restricted entrepreneurs’ access to the market on top of women and gender-diverse entrepreneurs having less access to cash flow. But GenderSmart reviewed data from the World Bank that found that in 2021, the gap between women and men owning accounts in banks, credit unions, microfinance, or mobile money service providers within developing countries dropped from nine per cent to six per cent. Many women and gender-diverse-led businesses were forced to expand within their communities and establish a digital model for their businesses, including finding new ways to increase and manage their money. Now members of the GenderSmart community are trying to do the same for women and non-binary entrepreneurs in other emerging markets and rural areas. 

“We still need to be allocating capital with a gender lens in order to design the right solutions that women and more marginalized groups need in order to fulfill their financial empowerment requirements,” says Kapadia. 

Several hurdles stand in the way of women and non-binary entrepreneurs’ potential for success in entrepreneurship. Women get less money from venture capital firms due to gender bias. This could be addressed by having more women and gender-diverse venture capitalists, but they only make up 15.2 per cent of venture capitalist partners. 

Women and gender-diverse people are less likely to own property and generally have lower incomes than men, so they do not have enough collateral for bank loans. Many self-fund their business to start, relying on personal credit that can then trend too low if they try applying for a loan afterwards. These hurdles are two-fold for women and gender-diverse people of colour who statistically have less wealth than their white peers and who must also overcome racial bias in the investment world. 

Not to mention the unpaid care work that keeps women from working on their businesses full-time, which the pandemic only exacerbated. Around the world, girls and women spent 12.5 billion hours on unpaid care work. Oxfam Canada reports that with unemployment rates and more precarious work contracts women lost at least $800 billion in income in 2020.

Kapadia discussed two gender smart investing examples currently enhancing women’s financial and digital inclusion. The first is the Women’s World Banking Fund (WWB Fund) that has over $100 million in assets under management through development and private sector capital. 

The WWB Fund is aligned with the 2X Challenge Fund, which calls for the G7 countries, other development finance institutions, and private sector investors to finance $15 billion for women’s enterprises. It has currently mobilized more than $11.4 billion in three years. 

To get 2X funding, the business or startups that investors are seeking must align with the following criteria: 51 per cent of women ownership or business funded by a woman; 30 per cent of women in senior leadership, the board, or investment committee; 30 to 50 per cent women in the workplace and one quality indicator beyond compliance, depending on the sector; and products or services specifically or disproportionately benefiting women. Even if investors’ target enterprises meet at least one criterion, up to 30 per cent of the development finance institutions loan proceeds or investments through other financial intermediaries must meet the criteria urging more women leadership, ownership, benefits and so on. 

Kapadia also led the feasibility study on the Impact-linked Fund for Gender Inclusive Fintech which provides finances and technical assistance to women-led financial technology (fintech) companies. The fund,  led by Roots of Impact and supported by Swiss Agency for Development and Cooperation, Austrian Development Agency, and other partners, is made up of donor money and contributions from the development sector.

“It’s not just about increasing the number of women who have access to a bank account, but really thinking about the quality of that usage,” says Kapadia. To her, women must have the income to improve their household wealth or education. “It’s about leveraging finances to get more women financially included.”
 

Making room for a new system model

But it is not that simple.

According to Vicki Saunders, CEO of Coralus (formerly SheEO), part of women and non-binary-led entrepreneurs’ challenges is that “everything is entangled”.

Saunders describes the challenges many of her community members are facing: global supply chain products’ high shipping costs and order backups from the pandemic, social media algorithms changing and the costs of ads increasing, and the worry of recession slowing down investments. 

Coralus is a community supporting women and non-binary people in business. Its model consists of members, ventures, and activators who donate monthly to sustain the community. Community members can apply to have their ventures funded by other members paying monthly fees, and there is opportunity to contribute or connect with mentors, advisors, and customers to advance entrepreneurship. Despite this model, her community has not been growing for the past couple of years. 

This is a reflection of how difficult it has been to navigate entrepreneurship since the pandemic hit.

“There’s been a drying up of capital,” says Saunders. “It was bad before. Now it’s almost impossible to get funded. It’s so hard. You’ve got the economy stuff, the global supply chain, and the slowdown. It’s kind of the perfect storm.” 

Saunders serves on the Global Advisory Board of GenderSmart and attended their 2022 GenderSmart Summit: Traction to Transformation last month. She says most investors at the summit shared that their portfolios are down 25 to 40 per cent. This means the value of their investments have dropped, which could also mean they have less room to fund other ventures. 

“If you’re lucky enough to have an [investment] portfolio, [investors are] less likely to invest directly in startups,” says Saunders. 

Saunders says continuing to work in the same limited market and system is not working.

“We’ve spent more than a decade building this field of gender lens investing, making the business case to show what’s possible when you invest in women and non-binary folk, and the needle has not really moved,” says Saunders. “The second you hit a recession, you can see backtracking. It still continues to be a real uphill battle for people who are trying to get funding from traditional sources, and it’s a huge open field of opportunity for new models.”

Saunders says it is a waste of time to push against things that haven’t changed and urges underfunded entrepreneurs to seek out new spaces built for them. 

“What we need to do is go where the new things are working. Who is moving money, who is supporting communities of Black Indigenous Women of Color?” says Saunders. “Go in that direction, get into those communities. Those are the places where you’re gonna use your energy to put the things that you want.”

Saunders says that entrepreneurs in her community are creating business making $2,800 per dollar that is invested in them with “unbelievable” social and environmental impacts.

Saunders says the current financial systems are working best for those who designed them. Women and gender-diverse entrepreneurs are shut out even if their businesses do well, so they are looking at themselves for solutions.

“Focusing on trying to fix systems isn’t where we go,” says Saunders “Let’s go build a new one.”

The51 and StandupVentures are a couple of examples of investors that specifically focus on funding women and gender-diverse-led businesses. iFundWomen is a nonprofit that provides a platform for women and gender-diverse-led businesses to access funding through online fundraising, small business grants, as well as industry networking and mentoring.
 

Changing the systems (and the narrative) around inclusive entrepreneurship

Nancy Wilson, the founder and CEO of Canadian Women’s Chamber of Commerce (CanWCC) takes the position that though investment is the first step, it is not enough. Wilson focuses on the systems holding underrepresented entrepreneurs back. 

CanWCC is an advocacy group that supports women and non-binary entrepreneurs influencing the political and social barriers to their business disparities, such as trying to balancing business and family life without equitable and affordable support services, limited women and gender-diverse-focused support and funding, and overcoming the gender stereotypes in the industry. 

“Systemic changes and social and cultural changes are also necessary. There still exists biases and systemic sexism and racism and transphobia – all of these “isms” that hold back marginalized groups at the policy level,” says Wilson. “Businesses can be succeeding in the marketplace, but as a whole, we still have these inequities at the policy level that need to be changed so that ultimately, we can all have the same level of access and enjoy the same quality of life in general.”

CanWCC advocates for policy change and systemic change by collecting feedback from their members and translating it to policy recommendations. One recommendation to the Government of Canada include funding a $500 million feminist stimulus package managed by women-led community organizations to provide capital to Black, Indigenous, racialized, and mature entrepreneurs who need help starting and scaling business. Another one is creating an inter-ministerial committee to address women’s economic security and entrepreneurship and create a long-term support strategy. 

CanWCC also provides informational resources on grant and funding opportunities to their members. Their membership includes self-identifying women or non-binary people with a business entity that is at least 50 per cent women and non-binary-owned with a woman or non-binary leader or a non-profit with at least 50 per cent women and non-binary people on the board of directors. 

“At the social and cultural level, changing minds and changing norms needs to happen as well,” says Wilson. “You can see this when you look at the [venture capital] market and you have hard data that shows the positive [return on investment] from investing in a woman owned or a Black owned business, and then the [venture capitalists] are still not investing in them. So why is that? There’s something else going on there.”

Wilson says she sees the strong connection to women and social enterprises in her community, which she says she thinks could be linked to women wanting to create a world that aligns with their values after negative experiences. But to focus on that as a reason for investment is what Wilson calls “benign sexism”.

“Women should be able to start a business just to support their families,” says Wilson. “If you want to go out and change the world – great, I support that. If you just want to start an accounting firm, and make a good living, that’s great too. You shouldn’t have to want to change the world in order to have access to the marketplace and be a part of the economy.”

Dr. Kalpana Wilson, a professor at Birbeck, University of London, says focusing investment and development on women’s work is a problem because, “It’s still framed within the notion of the individual’s entrepreneurship which has to be the driver of social change. And so the responsibility is shifted onto the individual woman.”

Dr. Wilson researches race, gender, labour, neoliberalism, reproductive rights and justice with a focus on South Asia and its diasporas. She recently delivered the Al Berry lecture at the University of Toronto-Scarborough on development, discussing the burden of development and smart economics being predicated on women’s labour. Dr. Wilson questions these investments on such a global scale. 

“The implication is that you invest in something in order to get returns, right? It’s very much framed within the market framework where the assumption is that there’s a return through women’s labour,” says Dr. Wilson. “It really prevents us from looking at why structural transformation focuses on this idea that women work very hard and they will invest in their families and doesn’t really question the kind of conditions under which that’s happening and why we’re compelled to do that.”  

Instead, Dr. Wilson urges states, corporations, and investors to support gender relations through movements. 

“Women were a part of the huge farmers’ movement in India, which is resisting a kind of corporate takeover of agriculture,” says Dr. Wilson. “If we’re talking about social enterprise and giving back to the community, maybe we should be looking at those sorts of things rather than only at the business model.”

The Conversation reported on the disparity in women farmers in India where they work double the hours of men farmers, one-third of them are not paid, and only own 12.8 per cent of the land. 

There are 564 million women working in agriculture and those in developing countries taking home wages around $1.25 a day. Garment workers in Bangladesh are making 60 cents an hour to produce textiles for the global supply chain. 

Women and non-binary entrepreneurs mostly work in retail and the service sector, according to CanWCC’s Wilson. Beyond increasing their economic participation, all women and gender-diverse people at all levels of labour must be considered.

“It’s not just owner characteristics that matter,” says Wilson. “It’s how the business is run and everything underneath that.”

And beyond that, Wilson asks the question, “Who are we making more wealthy?”

In Canada, an individual must have net assets of at least $5 million to be an accredited investor. Wilson describes this protection from investment risk as “paternalistic” since venture capitalists and angel investors are generally accredited investors and the wealthy continue to generate significant wealth when their investment portfolios are successful. Wilson wants to advocate to remove that protection. 

GenderSmart’s State of the Field demonstrates the gains investors are making in advancing women and non-binary-led businesses through private, public, philanthropic, and developent capital. 

While a gender lens is imperative to increasing women and non-binary entrepreneur’s economic participation, financial actors must also consider what the biased financial systems aren’t changing. Financial and digital inclusion investments will continue moving the needle slowly if banks, venture capitalists, and states reinforce the structural barriers warranting gender-smart investors’ initiatives in the first place.

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