17

Finding innovative funding

How inspiring women founders and investors are turning the tide

Shifting capital towards women’s economic empowerment

Shifting capital towards women’s economic empowerment

Blog article by Jessica Espinoza, Vice President for Private Equity & Venture Capital Investments at DEG/KfW and Chair of 2X Challenge

The way we allocate capital and invest shapes the world we live in.

If we want to change the world, we must change the way we allocate capital.

And if only two per cent of venture capital goes to women-led startups, that tells you a lot about the future we’re currently building.

SDG 5, Gender Equality, is not only an extremely important goal in and of itself, but also a catalyst to achieve all other Sustainable Development Goals (SDGs). For example, there are important synergies between gender and climate. The business case for investing in women is equally strong: companies founded by women deliver twice as much revenue per dollar invested, yet they only receive a laughable fraction of investment capital. Similarly, gender balanced leadership teams in private equity generate a 20 per cent higher net IRR, yet women hold only eight per cent of all senior positions in venture capital and private equity firms in emerging markets (10 per cent in developed markets). Although the impact and business case for gender equality is well established, at the current rate of progress, it will still take 267 years to close the economic gender gap globally, according to the World Economic Forum’s Global Gender Gap Report 2021.

At the G7 Summit in 2018, we launched the 2X Challenge as a global call to action. We made a commitment among the Development Finance Institutions (DFIs) to mobilize at least US$ 3 billion of private sector investments that empower women in emerging markets by the end of 2020. At the time it really felt like a challenge. But by embarking together on a joint investing and learning journey, we were able to accelerate change very quickly. As of end-2020, the DFIs alone had invested close to US$ 7 billion of their own capital and mobilized other investors along the way, bringing the total of 2X capital invested to US$ 11.4 billion, more than three times our initial target. At the recent G7 Summit in June we announced a new ambitious target: US$ 15 billion in 2021-2022. And we’re inviting the full spectrum of investors globally to join us in the newly launched industry body, the 2X Collaborative, to seriously move the needle on shifting capital to gender-smart companies and underrepresented entrepreneurs.

Jessica Espinoza in Bolivia
The 2X Challenge mobilizes capital for women entrepreneurs in emerging markets.
Image provided by Jessica Espinoza

What we have learned on this journey is that one of the best ways to scale the impact of our capital is to invest in funds and intermediary platforms that in turn invest in women through gender-smart businesses. A great example is Alitheia Capital, a pan-African women-led gender lens investment fund. As part of our new 2X commitment, we are developing a portfolio of 2X Flagship Funds – venture capital, private equity and debt funds with a strong commitment at all levels: at the fund manager level to promote gender diversity in the investment industry, and at the portfolio level by investing with a gender lens in gender-smart companies and underrepresented founders. We have seen exciting progress among established fund managers who are keen to join the 2X Flagship Funds league.

In spite of all of these achievements, there is still a big blind spot in the industry that requires our attention: A growing number of women in the investment industry are venturing out of established firms to launch their own funds with an innovative, entrepreneur-centric investment strategy and a firm culture that embraces diversity and inclusion. These fund managers are on fire to tackle systemic barriers and biases that have historically prevented capital from flowing to underrepresented founders. In other words, these pioneer fund managers are solving for the big challenges we all want to see solved. Ironically, during fundraising, pioneer fund managers often face the same systemic biases and barriers as underrepresented founders.

My recent PhD research among pioneer funds across Sub-Saharan Africa found that gender bias is compounded by biases based on race, ethnicity, class and (perceived) motherhood. This leads to a paradox: Diverse fund managers start their own funds to transform investment culture and change the way capital is allocated through innovative investment strategies. These strategies take an entrepreneur-centric approach to investing, intentionally tackle biases, and design capital features and value creation approaches accordingly. However, because these fund managers themselves face gender bias, they are advised by investors to rigidly adopt the traditional private equity and venture capital model – perpetuating the problem they wanted to fix in the first place. Instead of ‘fixing’ innovative strategies, we must fix the capital. Our core partners at GenderSmart have just released an insightful practitioners guide to do that.

Anna Raptis, Founder and Managing Partner at the Latin American VC firm Amplifica Capital makes a great point about the importance of founding partners: “To address the systemic bias in capital formation we need more women as founding fund managers, so that the views and values of women are part of the DNA of the fund structure and vision.”

Putting more capital into the hands of women-led fund managers is key to unlock the ripple effects of gender equality. As Adesuwa Okunbo Rhodes, Founder and Managing Partner of Aruwa Capital Management, a private equity firm in Nigeria points out: “In order to accelerate closing the significant gender gaps in society, we have to fund women as capital allocators, there is a natural trickle down to women in our portfolio as founders, consumers, board members and active participants in value chains. Female fund managers have a natural competitive advantage to invest with a gender lens and can naturally generate strong financial returns whilst advancing gender equality and contributing to social impact.”

What is 2X doing about this? We recently spearheaded a design sprint bringing together the voices and brainpower of 120+ pioneer fund managers, investors, and venture capital and private equity associations across all emerging markets to tackle this complex problem. Our aim was to co-create an innovative solution that has the user-perspective at its core and early buy-in from investors and decision-makers. The outcome is the prototype of a three-legged solution: 1) capacity building and working capital; 2) a warehousing facility for early deal-making to demonstrate track record; and 3) an investment facility that acts as an anchor at first close. We call it the 2X Pioneer Funds Accelerator Facility. Our core sprint team is now collaborating on the detailed design and, having secured the first funding commitments, we are about to kick off our fundraising process. We’re inviting the spectrum of investors to join us in this endeavor!

Jessica Espinoza
Jessica Espinoza is Vice President for Private Equity & Venture Capital Investments at DEG/KfW and Chair of the 2X Challenge, a global initiative that has mobilized over $11 billion of gender lens investments since its launch at the G7 Summit in 2018. She has extensive experience originating, structuring and executing debt, mezzanine and equity deals in emerging and frontier markets with a strong focus on inclusive innovation. Jessica serves on the Board of Directors of AlphaMundi Foundation, the Mexican financial institution Mega, and on the Advisory Board of several Private Equity & VC Funds. As a mentor for Endeavor, she supports high impact companies as they scale up. Jessica is the Founder of XOCO, an inclusive edtech venture and a fellow at Columbia eLab. She was awarded the Digital Female Leadership Award #GlobalHero 2019. Jessica is a PhD candidate at University of Siegen, researching the transformative potential of gender lens investing. Prior to joining DEG, Jessica was Member of the Management Board at ProCredit Bank Nicaragua and part of the Group Funding team at ProCredit Holding. She managed the Africa Regional Office of MicroFinance Transparency and led a flagship program to promote financial inclusion across Latin America.

Interview

Overcoming gender barriers and supporting female farmers in Tanzania

Many investors expect you to spend 100 per cent of your time on your company, says Brigitha Faustin, founder and CEO of OBRI Tanzania. In this interview, she shares how she balanced life and family and how the Tanzanian government supports women founders.
Katharina Münster
Table of contents

graphic summary

GRAPHIC SUMMARY

Learn more about inspiring women entrepreneurs and innovative investors by reading this seventeenth edition of the online magazine on Inclusive Business! The illustration was developed by Christopher Malapitan, a visual practitioner and trainer…

Christopher Malapitan

editorial

Optimism and frustration, celebration and caution: the rising tide of women entrepreneurs taking their place in business and finance

In her editorial, Caroline Ashley discusses why advances in funding for women entrepreneurs provide reasons for both optimism and caution, focusing on both the vibrancy of innovation and new solutions and the work that still remains to close the gap.

Caroline Ashley

feature story

Finding innovative funding: Unlocking capital for women founders

Women founders are building inclusive and innovative businesses that serve the traditionally underserved around the globe. However, many women still struggle to receive the capital they need to grow their businesses. This issue of CLUED-iN features several groundbreaking women business founders, from Ajaita Shah who developed an all-woman sales force in rural India, to Brigitha Faustin, whose sunflower oil is produced mainly by women in Tanzania. It includes a range of insights from entrepreneurs, gender smart investment experts, investors, and women capital allocators, who examine what it will take to narrow the gender funding gap and support women founders around the globe.

Alexandra Harris

Talking #InclusiveBiz No. 3: Impacting the growth trajectory of women founders through innovative initiatives, such as Global Scale Up X

In the third episode of the iBAN podcast Talking #InclusiveBiz, Susann Tischendorf from iBAN speaks with Jona Repishti and Amanda Epting, Managers at MIT D-Lab, about their inspiring work on solving crucial global gender financing challenges and about the importance of incorporating inclusive innovation processes into the work of practitioners. In particular, they highlight why innovative storytelling approaches, like the one of the Global Scale Up X Instagram channel recently launched by MIT D-Lab and iBAN, are important in helping smooth the entrepreneurial journeys of female entrepreneurs.

Why we need multiple flavours of capital for inclusive gender-smart business

Suzanne Biegel, a global leader in gender smart investment, explains how women entrepreneurs can benefit from multiple types of funding. She also discusses the role of storytelling in making the business case for investing in women.

“How much ease can we create?”: Developing financial solutions for rural women

Chetna Gala Sinha founded Mann Deshi Bank and Foundation to help a woman blacksmith in rural India save for a tarpaulin cover. In her interview, she discusses how new financial solutions and credit rating tools should be tailored to women-owned businesses.

Why traditional investment indicators don’t always apply

Nathalie Aldana, who founded a business in Sweden selling dried fruits and jams sourced in Colombia, reveals why inclusive businesses may value performance indicators that don’t directly fit with traditional investment models.

Shifting capital towards women’s economic empowerment

Jessica Espinoza, Chair of the 2X Challenge, explains why investing in funds and platforms that invest in women through gender-smart business is one of the best ways to scale the impact of capital.

Overcoming gender barriers and supporting female farmers in Tanzania

Many investors expect you to spend 100 per cent of your time on your company, says Brigitha Faustin, founder and CEO of OBRI Tanzania. In this interview, she shares how she balanced life and family and how the Tanzanian government supports women founders.

Choosing the right type of funding to make a lasting impact on female artisans

Reese Fernandez-Ruiz discusses scaling and funding for inclusive businesses and how Rags2Riches supports women artisans beyond providing livelihoods in the Philippines.

Creating more tables, not just seats at the table: Narrowing the gender funding gap by investing in women capital allocators

In Africa, there are many startups led by women, but these enterprises often have trouble accessing finance. In her interview, Adesuwa Okunbo Rhodes shares how Aruwa Capital Management opens up funding and opportunities for women entrepreneurs.

Investing in women is smart business and key to poverty alleviation at scale

Ajaita Shah discusses why investing in women has a strong impact on poverty alleviation, and how she has empowered a network of women sales agents in rural India through her enterprise, Frontier Markets.

Empowering women-focused businesses by tying investment to impact assessment

Robert Kraybill explains how IIX developed the first Women’s Livelihood Bond which limits risk for investors and ties investment to impact on women’s livelihoods in multiple countries.

Voices of global female entrepreneurs

Which challenges have female founders tackled, what have they experienced, and what have they learned? In this Voices piece, four successful women entrepreneurs featured in the Impact Stories series share their stories.