Women-owned enterprises seem to have finally become vogue for venture capitalists in Southeast Asia.
Funding for businesses led by women is gathering steam in the region as they are seen as sustainable bets amid the COVID-19 pandemic. In the process, they are also narrowing a billion-dollar financing gap faced by female entrepreneurs.
Southeast Asia, along with East Asia, witnessed 23 active, private market, gender lens investing (GLI) vehicles at the end of last year with total assets under management of $815 million, up 77 per cent from the year before, according to a joint report by Sasakawa Peace Foundation, Catalyst at Large, and Sagana in July.
The interest has spilled over to 2020 as well.
While women do not chase fancy billion-dollar-company titles, their businesses often display stable growth and maintain positive cashflows, VCs say.
“The beauty of businesses which have strong cash flows and are not burning a lot of capital is being seen more than ever in this [COVID-19] time,” said Shuyin Tang, a partner at impact investment firm Patamar Capital. On September 14, Patamar Capital launched its $50 million debt instrument for Southeast Asian female founders, Beacon Fund, which is likely the largest gender-themed vehicle in the region to date. Tang is the CEO of the fund.
Separately, US-based investment manager SEAF is expected to launch the Women’s Economic Empowerment Fund targeting Southeast Asia. SEAF had announced in March that it plans to make the first deals from the fund by end-2020.
In 2017, SEAF had launched its Women Opportunity Fund targeting women entrepreneurs in Vietnam, the Philippines and Indonesia, and fully deployed it’s A$9 million ($6.6 million) capital. Phillippines-based accounting services firm CloudCfo and Ellana Cosmetics, Vietnam-based edtech Kyna and Indonesian BEAU Artisan Bakers are among SEAF’s portfolio companies.
Companies with at least one female in the founding team are superior to all-male teams, according to Singapore-based, women-focused VC firm Her Capital. The firm’s data show that such companies are 25 per cent more likely to outperform on profitability and help investors exit a year faster than businesses without women in leadership roles.
Another report by International Finance Corporation (IFC), part of the World Bank group, released in February this year showed that for every dollar of equity investment female-led companies garnered at the pre-acceleration stage, they saw about 40 cents of revenue generated post-acceleration. There was no correlation between these variables for male-led startups. In debt funding, female-led startups generate twice as much revenue per dollar than their male-led counterparts, the report showed.
Consider the case of the Shanghai- and Kuala Lumpur-based Gobi Partners. The VC has clocked 3x higher revenues, profitability, and retention rates in its gender-diverse teams, Sarah Chen, co-founder and managing partner of The Billion Dollar Fund for Women, told DealStreetAsia in our Women in VC report released in August. Gobi Partners is one of her fund partners.
“Investing in women is good business,” Chen stated.
Several Southeast Asian female-led startups have tasted success, whether it is by garnering later-stage fundraising or taking a bold move in a disruptive sector.
Singapore-based fintech firm YouTrip, founded by Caecilia Chu and Arthur Mak, has to date announced $25.5 million in funding at the Series A stage. Meanwhile, Singapore-based The Asianparent, a platform for parents founded by Roshni Mahtani, and the Singapore wellness firm CXA Group, started by Rosaline Chow Koo, have raised Series C rounds.
Moreover, companies like lab-grown protein startup Shiok Meats, led by its founder Sandhya Sriram, is in the midst of raising its next funding round as it accelerates growth in a groundbreaking industry.
“With the right, inclusive culture and a supportive team, most women will be able to excel in their careers, no matter which field they choose to pursue,” said YouTrip’s Caecilia Chu.
An underserved lot
The potential of women entrepreneurs notwithstanding, they are an underserved segment. The percentage share of venture capital funding for female founders in the region is still in single digits, and average cheque sizes were about 60 per cent of what all-male teams have raised, according to Gail Wong, managing partner at Her Capital, which has launched its debut vehicle targeting $10 million.
This has much to do with traditional VC and PE models that prefer exponential-growth startups.
“Female entrepreneurs have different aspirations and a different way of growing their businesses. Instead of blitz-scaling, they would rather run a sustainable business with a long-term orientation,” said Patamar’s Tang.
The funding trail for women-owned businesses might not run on the coattails of their initial success in securing a seed round either.
IFC’s data for emerging markets showed that in 2018, startups with a woman in the founding team raised only 11 per cent of the total seed capital. The number was even smaller when it came to the later stages of fundraising — 5 per cent.
This, again, lies in the foundation of whether there is enough capital at the initial stage. It’s the “law of large numbers”, Vynn Capital’s managing partner Victor Chua voiced out. “If you want more women-led businesses across all stages, we need to continue to see more funding going into early-stage companies that are led or co-founded by women,” he added.
The IFC report indicated that the capital disparity raised by male and female founders is strongly impacted by the gender makeup of the founding team, “suggesting a potential bias in investor decision making or a higher perceived risk for female-led startups”.
In a survey of nearly 300 female entrepreneurs, IFC said, about half of them reported experiencing discriminatory behaviour from vendors or suppliers. In some cases, potential partners or clients showed gender bias in their interactions.
“In some Southeast Asia markets, there are cultural barriers for women leaders — they are perceived with double standards or measured against stereotypes and this often handicaps how their business is perceived by investors,” said Wong, adding: “Undoing entrenched bias is perhaps the hardest thing and that’s why capital from a fund with a fresh approach is the quickest path to redressing the [financing] imbalance. Male founders have been found to project and demand high valuations more aggressively than female founders. Female founders who don’t fit that mold or who present more realistic business plans will be penalised with the narrow lens of VC.”
Ironically, because of the funding crunch, female founders also know how to squeeze the juice out of their own challenges. “Female founders tend to bootstrap for longer. Whether that is out of choice or because of limited capital, they tend to be more mindful of being self-reliant and self-funding growth,” said Wong.
Yet, those who go against the grain seem poised to reap the benefits.
Patamar’s Beacon Fund, for instance, expects itself to yield stable liquidity and a strong base for future capital by investing into stable growth, cashflow-positive, women-led SMEs. The fund’s debt financing model and evergreen structure would help it better recycle capital, Tang said. It is harder for traditional equity investors, with a 10-year fund life, to recycle as the exit horizon in Southeast Asia is longer.
Wong advocates that gender-responsive investing should go beyond “add women and stir”. “It is important for a firm to adapt their entire investment process (from sourcing and evaluating to portfolio management) to include more diverse types of people and backgrounds.”
From a founder perspective, YouTrip’s Chu believes Southeast Asia has reached “a tipping point” for having more female entrepreneurs.
“Over the last 1-2 years, there have been significantly more inspiring women figures in the fintech and startup space. I fully expect we will see many more female-led companies among the next wave of entrepreneurs emerging from this COVID-19 impacted period,” she said with conviction.