Tackling a gender investing and funding gap

LET us look at 2 main themes - the gender investing gap and the female founder funding gap - and uncover just how these 2 are related. The last 2 years of my life have been dedicated to understanding these 2 points, their relationship, and also to driving more capital to female founders. This year, I am adding another focus; I want to help create more female investors and I have launched Sophia along with 2 co-founders, Christine Yu and Nicole Denholder.

What is the gender investing gap?

The gender investing gap refers to the number of men investing their disposable income, versus women. The gap is pretty huge when we look at all investment types and asset classes - meaning women are lagging and holding on to more capital than men. In fact, women hold around 71 per cent of their wealth in cash versus 60 per cent for men.

So, why is this? Well, let us not forget there is a wealth gap: Women make up 51 per cent of the world's population but hold only a third of the world's wealth (US$93 trillion by 2023). One reason might be because women are paid less than men (the gender pay gap), and another reason might be that with that increased disposable income, men have the luxury of investing more and thus making more money, and so the cycle continues and the wealth gap increases year on year.

Is it all to do with having less disposable income? Are women just risk-averse?

It is unlikely that even with the same amount of disposable income, that women would invest at the same rate as men. Beyond this wealth gap, it would be fair to suggest that women take into account broader considerations which perhaps look "risk averse" to men. However, it would be more accurate to describe this as being "more prudent with risk management". Meaning, women are constantly assessing and looking at the big picture.

In fact, this prudence actually works in our favour because women hold firm on investment decisions and do not constantly trade in and out of investments. This results in them paying less transaction fees over the long term.

It is fair to say that there is a gender gap in the finance world where women are not reasonably represented, and there are so few products and services created by women with women in mind. So how do women "break in" to this space? Where are the wealth managers who have women in mind?

All of the above results in fewer women investing, and that is not a good thing. Women have long led the charge when it comes to investing sustainably. A study by RBC Wealth Management found that women are more than twice as likely as men to say it is extremely important that the companies they invest in incorporate environmental, social and governance factors into their policies and procedures. Women also hire more women into leadership roles when they are building businesses.

Without a female investor lens, we have a very narrow lens of who receives capital. We can look around us and see clearly that these businesses that have been funded in recent years may not have been the best businesses for our planet, or our people!

Finally, female venture capitalists make up only a few per cent of all venture capital (VC) funds globally! For example, in South-east Asia, over 75 per cent of VC funds do not have any women partners (the decision-makers).

Founder gender gap?

This one goes something like this - all-women founding teams receive less than 3 per cent of VC funding globally! In 2012 this figure was around 3 per cent, and in 2019 it was still 3 per cent. The figure plummeted as Covid hit in 2020 and is slowly creeping back up towards that already poor 3 per cent.

Does this mean that 97 per cent of entrepreneurial talent resides within men? Doubtful! It more than likely has to do with the capital flow from the top down: this starts with institutional investors who flow capital down to fund managers, who in turn flow capital down to founders. This flow of capital unfortunately lacks diversity and means that nothing changes. The result is less funding goes to diverse founders, women included.

Why such a boys' club?

This is likely for a few reasons; firstly, the financial ecosystem is a traditional industry for men, so it makes sense that we still see more men in finance than women. Secondly, everyone's jobs are on the line. If an institutional investor does something bold and bets on a fund manager that might not fit their usual investment thesis and it all goes wrong, it will come back to bite that individual fund manager.

The same is likely true for venture capitalists too. Despite VC being seemingly like a high-risk asset class with money flying all over the place, it is actually built on decisions that are often considered "safe" or where precedent exists for something similar. Women fund managers are around 96 per cent emerging managers - meaning they are new to VC so they do not necessarily fit that safe/precedent bucket!

In summary, we have low angel investment participation for women, we have very few female venture capitalists in decision-making roles, and we have equally limited female founders receiving funding. It is not too far a stretch to make the connection and surmise that more female funders would result in more funding to female founders.

Leveraging and mobilising the wealth we already hold is a great way to be actively in control of our financial power. We do not need to ask for anything or sharpen our elbows to be accepted into the next boys' club. We can just use what we already have - our own wealth - and direct that wealth towards businesses and founders we want to support and see in the world. Is that thought not extremely empowering?

• The writer is co-founder of Sophia, a financial education platform focused on tackling the gender wealth and investing gap.