This article was originally published on Forbes.
Earlier this year, Oxfam International reported that 1% of the global population generated 82% of the wealth in 2017. In March, Forbes reported that there are more than 2,200 billionaires in 72 countries, with a collective net worth of $9.1 trillion — up 18% year over year. And in July, Jeff Bezos, founder and CEO of Amazon, became the richest man in modern history, with a personal net worth topping $150 billion.
We live in an age of astonishing global wealth, yet 767 million people survive on less than $1.90 a day. The social pendulum is off balance, and as I have mentioned before, we need to alter the paradigms that govern investment behavior, channeling wealth to sustainable social impact. But where? And how?
A growing number of social enterprises are leveraging the power of the private sector to reduce poverty in emerging markets. Such businesses are delivering innovations in off-grid energy, water and sanitation, education, health care and agriculture. These market-based solutions are creating significant interest in impact investing — an investment strategy that seeks both financial and social returns. However, much of this investment capital is still not reaching the social ventures blazing new trails toward poverty alleviation.
This gap in funding between the early and later stages of social enterprise growth — termed the “pioneer gap” — is nothing new. First coined in a report by The Monitor Group in collaboration with Acumen, the “pioneer gap” refers to a sort of purgatory where many social enterprises find themselves: too large for seed funding, too risky for impact investors and stuck at the uncomfortable midpoint between idea and execution. Despite more than $228 billion in impact investing assets under management, according to the GIIN Annual Impact Investor Survey 2018, pioneering social enterprises struggle to raise the capital needed to grow and scale businesses serving the bottom of the pyramid.
Unsurprisingly, this issue becomes more profound when you throw gender into the mix. We already know that everything from unfair treatment in the workplace to cultural norms make it difficult for women to achieve equality. And in the arena of financial inclusion, men with access to bank accounts continue to outnumber women. According to the World Bank’s 2017 Global Findex, only 59% of women in developing economies have an account, compared to 67% of men.
So, when we look at funding in the venture capital world, it may not be surprising to learn that women-led companies received only 2% of the venture capital injected into the startup economy, according to PitchBook. Not only are women-led ventures less likely to be funded, those that do break through will almost assuredly receive lower levels of funding than male-led startups. In 2017, the average deal size for companies led by men was $12 million, compared to $5 million for women.
The challenges of attracting investment for social enterprises serving the world’s poor, coupled with the unique barriers faced by women-led startups, have created a “gender pioneer gap.” Consequently, female social entrepreneurs are penalized not once, but twice.
The gender pioneer gap is a problem for sure, but it’s not a new one. Both high-risk social ventures and women have long been subject to uneven opportunities when it comes to funding. It’s a problem I first encountered in the ’70s and -’80s while pioneering microfinance with my friend and co-founder, John Hatch.
We witnessed how the impoverished were deemed too risky for capital lending, and women were overlooked due to cultural norms. This observation led us to create Village Banking™ so that underserved women from Guatemala to Tanzania could — even with scarce resources — take out small loans, grow their businesses and invest in their futures. We set out to transform a “man’s club” into a place for women.
Additionally, we are proud that, of the six companies we’ve invested in through FINCA Ventures, five have female co-founders. A great number of women-focused or women-led social enterprises exist, but ecosystem-level support is needed to ensure equal access to resources for sustainable growth. Thankfully, an increasing number of influential players are getting involved.
In late 2017, leading impact investing association GIIN, which my company is a member organization of, launched a two-year initiativeto catalyze gender lens investing, an investment strategy that considers gender disparities and dynamics. The goal is to deploy more investment capital toward enterprises founded and run by women, or startups addressing the economic and social well-being of women and girls.
Separately, Suzanne Biegel, a gender lens investing pioneer, founded Women Effect, which is part of the Wharton Social Impact Initiative. Women Effect helps investors see gender in their portfolios as a way to maximize financial and social returns. Suzanne also serves as an adviser to the SPRING accelerator. Women’s growing wealth and this year’s #MeToo movement are also contributing to rising interest in impact investing with a gender lens.
Working around the world as an agricultural economist has taught me to confidently invest in women, and I urge others to do the same. I’ve found that female loan recipients in developing countries tend to be reliable and invest their money in ways that benefit families and communities, making them excellent financial agents. And when it comes to those with means, many women are interested in making “sustainable” investments that target both financial and social goals.
John and I committed early on to invest in the “high-risk” areas that no one else was serving. More than thirty years later, we find ourselves in a similar predicament where women are still more likely to be denied access to credit or investment capital. Venture funding is still a man’s club, and we need to change this so that enterprising women from Silicon Valley to Silicon Savannah have equal opportunity to grow and scale bold ideas.