Step into wealth-building with private investing, while supporting a new crop of female entrepreneurs.
The last year was a transformative one for all businesses, but particularly for women-owned businesses. Though many female-founded businesses struggled to raise capital, representing just 2.3% of total venture capital funding according to data from All Raise, something more powerful emerged: a resilient and purpose-driven community of female founders and funders, who together are committed to breaking down barriers for female entrepreneurs. This commitment to female leaders is gaining momentum as investors increasingly embrace the true value of diversity in business.
Spotlight On: Whitney Wolfe Herd, Bumble CEO
Under the leadership of Whitney Wolfe Herd, Bumble built a majority-female leadership team to strengthen and professionalize Bumble’s operations and invest in new features. These enhancements ultimately helped take the company public in February 2021 in a historic IPO valued at $14 billion. The IPO made Wolfe Herd the youngest female entrepreneur ever to take a company public in the United States. To help other female entrepreneurs succeed, Bumble recently launched Bumble Fund, focusing on early-stage investments in businesses founded and led by women of color and other underrepresented groups.
A Spectrum of Investment Options
To provide a real diversification benefit to client portfolios, Northern Trust provides an alternatives platform that brings together leading institutional investors that generate unique and differentiated sources of risk and return. Each of the firms we work with has made significant commitments to increase funding and support for women-owned businesses and female fund managers. We reached out to some of these firms to better understand what is driving this demand and the associated risks, rewards and success stories.
Each of these firms underscored the material benefits of diversity at the portfolio company level. Some of the unique attributes and value female leaders may contribute include:
- Leadership in key female-oriented sectors such as women’s health, education and recruitment
- An inherent understanding of the need to support and promote diverse perspectives, which in turn contribute to more effective and innovative decision-making processes, stronger governance and improved financial outcomes
- A history of overcoming hurdles and stereotypes that make them uniquely positioned to handle the ups and downs of an early-stage company
- A tendency to be more open to asking for different thoughts and opinions
While there are many ways in which women add value in leadership roles, it is also critical to consider the risks involved in each unique company and leader. For example, most institutional investors often look for serial entrepreneurs who have a track record of success across multiple companies, and female founders are harder to find with this criterion.
Spotlight On: Three Firms Committed to Female Founders and Funders
50 South Capital is committed to diversity, equity and inclusion consistent with the corporate values of Northern Trust. The team has broadened the tent of inclusion to provide more opportunities for investment, and to incorporate diverse perspectives. Whether it is supporting female founders, or women-run venture capital funds, 50 South Capital is actively engaged in activities aimed at leveling the playing field of opportunities consistent with the belief that this will ultimately accrue to the benefit of investors. In their view, it is a virtuous cycle: when venture firms have more diverse teams, they tend to back more diverse founders.
Blackstone believes supporting women and female-founded or owned companies is critically important to its culture. The company is committed to driving gender diversity at the firm and across its portfolio, where its scale allows for a massive impact. In fact, 50% of the independent private equity board seats staffed in 2019 were with women.
Carlyle has prioritized diversity, equity and inclusion, both internally and in portfolio companies, leading to increased value creation. An analysis of portfolio companies found that when the board was diverse, the average annual earnings growth was 12% higher than companies without a diverse board. More than half of Carlyle’s $246 billion in AUM is managed by women, and the company has formally linked progress in diversity, equity and inclusion into its compensation process.
Putting Words into Action
How can women interested in supporting other women gain access to these private investment opportunities and approach them in a way that complements their overall goals?
A key issue with any private investment is the high risk associated with investment failure. When looking at the universe of venture opportunities, even the best performing venture funds that focus on maximizing return over time and with no constraints on their investment universe actually lose money on more than 50% of the investments. When you consider narrowing the universe to female founders or female-run venture capital firms, that can present an even more challenging environment. As investors, we know that risk and return are related, so we cannot avoid risk, however we must manage risk.
There are some key considerations that can help to mitigate this risk:
- Size: First and foremost, assess how large of an allocation and the amount of illiquidity you can absorb as an investor, and still meet your high-priority financial goals over time. It is critical to appropriately size any investment in private assets, but particularly because those investments may carry an even higher risk.
- Structure: For most investors, we believe the best way to gain exposure to private investment opportunities is through a fund structure, and not direct investing. The fund structure will provide needed diversification at the deal level and provide important deal due diligence. General partners also bring tremendous experience and expertise to bear.
- Diversification: We recommend investing in multiple funds, or in fund series, to gain vintage year and important sources of diversification. It also makes sense to invest across a spectrum of opportunities: first-time founders/early stage/seed stage, but also balanced with more seasoned entrepreneurs in order to offset risk.
Supporting female founders is the ultimate “pay it forward” opportunity: these founders create track records that attract capital, they create important networking opportunities for each other, they encourage important skills and experience-building that is critical for continued capital growth in this important market. Just as there is tremendous excitement on the entrepreneurial side, there is growing interest on the investor side of the equation. This is not a trend: It is the new normal.
The most important question for investors is, how much? Once women are confident they can fund all of their lifetime goals, it opens up a whole new world of opportunity to support other diverse entrepreneurs while building their own wealth.
Learn more about how private investing may fit into a custom goals-driven wealth management plan.
The Ultimate "Pay It Forward" Opportunity
Learn how to build your wealth while supporting female entrepreneurs.