Tapping into female start-up returns

Ariane Barker can empathise with women investors shying away from the start-up scene. 

“At the moment, it’s a pretty blokey, hustly, opaque, secretive space, which doesn't resonate with a lot of women investors, myself included,” says Barker, the chief of angel investor network Scale Investors. 

“That’s why we’re moving into a much more sophisticated, structured process – raising a fund, working with a professional manager, leveraging a network of talented, emerging women business founders and investors, and capitalising on the fact there’s a gap in the market.” 

Barker, a former seasoned investment banker, is referring to her firm’s recent tie-up with boutique investment manager Acorn Capital to create the “Female Leaders Fund”, which is seeking up to $50 million to be invested in a portfolio of eight to12 start-ups led by women.   

It aims to tap into “an undervalued investment opportunity”, says Barker, citing how only 2 per cent of global venture capital is estimated to go towards women founders despite higher numbers than ever before and piles of research showing gender diversity drives outperformance. 

“When women pitch for money there can be a lot of unconscious bias creeping into the conversation,” says Barker, who will sit on fund’s investment committee. 

The new fund’s lead manager, Acorn’s Xing Zhang, says since fundraising commenced this month – seeking minimum investments of $100,000 – the fund had already attracted pre-commitments from some big-name investors, giving her confidence of hitting its $30m-$50m target by the end of September. 

She believes part of the interest was that the research underpinning the investment thesis – that diversity in leadership positions produced outperformance in pretty much every financial and non-financial metric – had become too compelling to ignore. 

She points to research by BCG which shows that for every dollar of funding, start-ups founded or co-founded by women generated 78 cents of return, while male-founded start-ups generated 31 cents. Meanwhile, McKinsey has found companies in the top quartile for gender diversity on executive teams were 21 per cent more likely to outperform on profitability. 

While it’s the first of its kind in Australia, the fund adds to global momentum around “gender investing”, a theme that’s been followed closely by head of wealth services at Westpac Group, Elissa Crowther-Pal.  

She cites Goldman Sachs’ $500 million initiative in the US to invest in women-led companies; and new US and European exchange traded fund (ETF) indices that track companies with high proportions of women in leadership, like the “SHE” index in the US and the Global Gender Equality UCITS ETF set up by Swiss banking giant UBS. 

“There have been a few things bubbling up in other markets … but we’ve found very few investment options in Australia,” says Crowther-Pal.

“(But) we know this opportunity exists and will grow. By 2020, women around the world are expected to control $US72 trillion, up from $US51 trillion five years prior.” 

This is the first period in which women in developed economies “have equal access to almost anything”, adds Zhang, leading to a “wall of the best and smartest women with the financial freedom and creativity” to move away from traditional roles and into their own businesses. 

“This underscores a future where disruption, innovation and growth opportunities by women entrepreneurs will become a more defined investment thematic,” she says.

Barker, who this month announced an investment in Neighbourlytics, Scales’ eighteenth since starting six years ago, says that beyond realising the potential of talented women founders, the new fund would also help keep entrepreneurs – along with the wealth and value they generate – on Australian shores rather than turning to offshore funding sources. 

“By having a fund like this, women entrepreneurs will no longer be on the back foot,” says Barker. 

“They can focus on their businesses, rather than running around pitching and trying to raise money for a year, which is a waste of time in an environment where you need to ‘move fast and break things’.”