The gender imbalance in the investing world

Research shows that gender diversity could lead to significantly better outcomes

Thought diversity is what it takes to drive gender diversity. Any discussion around encouraging gender diversity is incomplete without mention of the towering Ruth Bader Ginsburg, a pioneering role model. One of her quotes which will go down in history and continue to inspire generations of women, says it all:

“Women belong in all places where decisions are being taken.”

This is even truer for the investing field which actually has the ability to set the wheels in motion for creating new entrepreneurs and backing innovations to change the world.

Current statistics speak volumes

While gender diversity in investing has been discussed till the cows come home, the fact is that statistics are stark.

As per Mckinsey, women hold only 10 percent of all senior positions in private equity and venture capital firms globally, women-led enterprises collected less than 3% of global venture capital in 2017, and only 20% of the portfolio company teams have gender diversity.

While the intent is high, execution significantly lags. I know there are lot of funds which have specific targets of gender diversity, but have not been able to create a balanced team. What is more alarming is that on most occasions, the gender diversity gap is bridged at junior levels, while at senior positions, the numbers continue to dwindle.

While trends clearly demonstrate a gender imbalance, it is much more important to research and understand the why of it? What are some of the real issues which create the so-called “Glass ceiling”? I use the word “so-called”, as I personally do not believe in the concept of glass ceiling – it is a figment of our imagination, and there is no glass ceiling that cannot be broken.

In reality, there are fundamental issues which don’t often get discussed but will go a long way in shaping careers, if addressed.

1. Women don’t market themselves well; they find it difficult to showcase their work or talk about it.
2. Getting a seat at the table has always been harder, and even if you earn it, being heard is a challenge.
3. Finding mentors with whom they can really open up is rare.
4. In a gender-skewed industry, networking for women is a tight-rope walk.
5. Women are more detail-oriented and focus on getting all things right; instead a balanced approach pays off most times, saving time and proving a point.

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Outcomes are better with gender diversity

Recently, the winds of change are in favour of women and a lot of it is driven by increasing awareness. A Mckinsey report states that gender-balanced teams have shown 20% higher net IRR; now that’s a whopping difference. Female partners invest 2x more in women entrepreneurs than male partners and balanced teams at portfolio companies have shown higher valuation increases.

So, it comes a full circle; gender-balanced investing teams invest more in diversified portfolio teams, which in turn create higher value (~25%).

Warrants thinking of ways to encourage more women in investing

Some of the nudges that can drive change:

Push from the Limited Partners (LPs)

While evaluating investments, LPs must push for more gender-balanced senior leadership at the GPs; and invest consciously in GPs with gender-diverse teams.

Drive gender lensed investing

LP preference for gender lensed funds can turn the tables for women-led/managed/focused businesses. Researchers have concluded that female partners are more likely to invest in women-centric businesses, thereby encouraging GPs to hire women partners.

Effective mentorship

As Oprah says, a mentor is the one who allows you to see the hope within you. Mentors can make a big difference in inspiring you, guiding you and hand-holding along the way. Formal/informal mentorship for women employees can really help them scale new heights.

Employee friendly policies

An in-house environment that does not force employees, especially women employees, to choose between work and family with flexible work hours, work-from-home, maternity benefits, and more importantly enabling work-family management for working mothers without judging them or doubting their capabilities.

But let’s not miss the wood for the trees here. The most important factor to encourage gender diversity is “Thought Diversity”; we need people to change their mind-set.

If we want to change things, debates and discussions do not help. What we need is action.

I urge all professionals in positions of power, men as well as women, to come forward to drive this change. We need to change our attitude and then witness the magic that follows.