Why is it important for women to invest in Venture Capital?
By Lorena Suarez, Managing Partner of Alaya Capital.
In Latin America, women make up only 8% of investments; in the world, women partners in investment funds represent only 4.5%. It is no news that although women make up half of the world’s population, we are not adequately represented in the business world, including investments.
In my journey as an investor I have noticed the evident lack of diversity in the entrepreneurial ecosystem at all levels: women entrepreneurs, fund managers and investors in Venture Capital Funds (Limited Partners), where I see a major absence. This is something that concerns me because I believe that gender diversity is a great tool to face the challenges of the present and the future.
According to the book Diversity Bonus, cognitive diversity improves decision-making in today’s business environment. If we go back to the industrial era, it was necessary to find homogeneity in work teams to optimize mass production results. But in today’s world, homogeneity is no longer a value, and diversity is. We live in the knowledge era, which requires making complex, fast decisions with more significant uncertainty. Thus, diversity allows us to achieve more points of view to solve challenges and increase the probability of success. So, if gender diversity is a type of cognitive diversity and brings superior results, isn’t it evident that we should seek it in all areas of decision making?
When investment teams include men and women, exits are up to 9.7% more profitable, according to a Crunchbase report. They also improve their decision-making by having a broader perspective of the market: studies indicate that women globally are in charge of 70% of the purchasing decisions for products and services for the household and their families. Therefore, having women investors who understand whether the companies to invest in a product that will be successful with the consumer is highly relevant.
In addition, a woman in a decision-making position favors more women. According to a study by All Raise, women investors are twice as likely to invest in startups with at least one female co-founder and more than three times as likely if the startup has a female CEO.
What is the personal and professional contribution that being part of this industry gives women?
- Impact: startups seek to solve structural problems in the region and the world, many of them with a strong focus on sustainability.
- Learning: The proximity to startups gives us back the opportunity to be close to the world of innovation: to get involved and add value from our experience and networks while learning about new technologies and businesses.
- Connect: Increase our networks by being part of a community and accelerate learning by sharing with more experienced investors.
- Build: Collaborate in creating less masculinized common spaces (“Bro “Culture) with greater openness to listen to new and different voices.
- Profitability: Participate in an investment opportunity in “alternative assets” with a higher return than traditional markets.
We understand that many structural challenges need to be addressed to achieve the full participation of women in Venture Capital – financial education, equity ownership, wage gaps, inequalities in caregiving, and masculinized investment culture, among others – I believe if we commit to breaking down barriers with joint efforts, we can contribute to achieving, over time, greater participation in these areas.
At Alaya Capital we created an action plan to promote diversity at the portfolio and firm levels. Since we believe that our “limited partners” are a strategic asset for our portfolio and that it is valuable to have a diverse group of investors, we created a Feeder Fund – a specific vehicle, with the objective of facilitating the entry of this class of Limited Partners.
I am convinced that if we can overcome the barriers and actively involve women investors, we will be able to improve the performance of the funds in general and support the growth of more companies and, consequently, of the entire region.