Gender Lens Investing: Moving Beyond Numbers

August 19, 2019

Gender lens investing (GLI) is interpreted and implemented in many different ways, from investing in women-owned and -led enterprises to investing in enterprises specifically targeting women, and more. Shuyin Tang is a Partner at Patamar Capital, a venture capital firm focused on Series A and Series B investments in South and Southeast Asia as well as a member of Women’s World Banking’s Southeast Asia Advisory Council. Based in Vietnam, Shuyin leads investment opportunities across the region and heads Patamar’s work on Investing in Women. Investing in Women is an initiative of the Australian Government to catalyse inclusive economic growth through women’s economic empowerment in Southeast Asia. In view of the upcoming Making Finance Work for Women Summit hosted by Women’s World Banking, we spoke to her to get a better insight into Patamar Capital’s work and views on GLI. During the Summit, Shuyin will serve as one of the judges of Women’s World Banking’s FinTech Innovation Challenge, designed specifically to reward and foster a FinTech start-up working toward women’s financial inclusion.

s tang 2016

There are so many ways to think about ‘gender lens investing. How do you approach it at Patamar?

Patamar focuses on four lenses – three of which are commonly applied and a fourth which is a little more unique to us. The commonly applied lenses are: 1) women-led businesses; 2) products and services which benefit women; and 3) gender equity in the workplace. We decided to go beyond these three and also look at the status of women in that particular society and cultural context, as well as the sector in which the business is operating. This means we apply a gender analysis to all the companies we evaluate for investment, not just ones that are led by women or focused on women. We seek out gender disaggregated data as we analyse the company’s business model and the market in which they operate. We then use this information to identify potential opportunities and risks. For example, we could examine whether there are any gender patterns in customer loyalty or retention, or look at how gender plays a role in the growth drivers of a particular market.

There’s some debate within the GLI community about process vs. outcome-oriented approaches to GLI. We’ve focused more on the process – that is, how do we embed a gender analysis into our investment process and operations as an investment firm – as it’s only through changing the process that we can systematically expect to get different outcomes. We’ve found that investing in women-led enterprises is popular as it’s relatively easy to track simple outcomes (e.g. “how many women did we invest in?”), but it’s not necessarily a guarantee of achieving one’s business or impact goals. It’s far more powerful to interrogate how a management team understands the needs of its female customers and uses that knowledge to generate customer loyalty, for example. Rather than saying “let’s make sure 30% of the companies we invest in are led by women,” it makes more sense to dive deeper into the firm’s deal-sourcing strategies and due diligence processes, which often contain gender biases.

You have gathered some great experience and first-hand exposure to GLI – whether through developing and applying Patamar’s GLI approach, working on Investing in Women or attending gender-focused conferences and talks. What are the main challenges you see in the space?

Applying GLI certainly comes with some challenges, as any change management process does. Even though our team is fully committed to the idea of GLI, integrating gender-oriented questions into our due diligence process has taken time and is still ongoing. Rather than have a ‘gender checklist’ (which would lend itself to ticking boxes rather than a deeper consideration of the issues), we created a set of conversation starters which our deal teams can draw on selectively as they do due diligence. Ideally, gender-oriented questions should be fully integrated into the overall due diligence process and not be an afterthought. Another constant challenge we’ve faced is striking the right balance between keeping GLI accessible and practical and also keeping it rigorous.

Stepping back to consider the challenges the overall sector faces, we see that the vast majority of GLI products are in venture capital or private equity, which we all know is not the most appropriate capital source for the majority of businesses. This often means that companies who do not have “explosive” growth often struggle to find funds. While some may be dismissive of these companies as “lifestyle” or “micro-businesses,” our experience from years of engaging with entrepreneurs in Southeast Asia has revealed that many of these businesses are in fact profitable, cash-flow positive, and growing at healthy rates.

Because of challenges raising funding from outside investors (due to a wide number of factors, including gender bias, access to collateral, and so on), women often gravitate to businesses with healthy unit economics where profits can be channelled back into organic growth. They are sometimes sceptical about taking on equity financing as they want to continue running their businesses and hence are not focused on an exit. Yet despite this, there are very few private debt or venture debt funds in Southeast Asia, and even fewer experimenting with alternative financing instruments, such as revenue-based financing or royalty schemes. Out of these, there are even fewer (if any) with an explicit gender lens. This seems to me like a massive missed opportunity.

Case studies on the business feasibility and desirability of GLI are mushrooming, and more and more people within the investing space are realising its potential. While this surely is a step forward, are there any drawbacks or precautions one should be aware of? 

Indeed, much of the work and energy within the GLI space is focused on proving out the track record for GLI or investing in women-led companies, which, don’t get me wrong, is an important thing to work on. However, if you want to look at data supporting the case for GLI, there is plenty of brilliant material showing that diversity (both gender diversity and other kinds of diversity) will enhance financials return, or at the very least won’t harm returns. And we’ve had this data for some time now. What worries me is that despite all the data, we haven’t moved the needle much in terms of the real amount of investment dollars directed towards GLI. The investment world seems to be waiting for more data on the business case, but I think the data already speaks for itself. What we now need is action.

Also, many are focusing almost entirely on the fact that GLI makes financial sense, and as ‘rational economic actors’ that’s what we should be doing. But what about the simple human decency of contributing to a more inclusive society? More and more the focus lies on GLI being the smart thing to do and less on it being the right thing to do. As mentioned above, these appeals to track record and financial returns haven’t been that effective, so perhaps we need to look at telling the story in a different way, a more emotional way.

One final question. How does and how should the future look like for GLI?

What I hope to see five, ten years ahead is more models going beyond the mere counting of female entrepreneurs receiving funding to really thinking deeply about how to create a more equal and inclusive society. This means moving past the paradigm of setting up another VC fund to target female founders, but instead experimenting with new approaches and models. Of course, this requires the whole ecosystem–from LPs to fund managers, from banks to enterprises­–to think more creatively. There are positive tailwinds, such as more socially-minded millennials and women controlling an increasing proportion of the world’s wealth. I hope we can channel these trends toward more thoughtful investment practices that look at more than just near-term financial returns.