Gender funding gap not pipeline but a capital access problem, says TBDF’s Sarah Chen

Sarah Chen at DEALSTREETASIA's Asia PE-VC Summit 2017 in Singapore.

There is no shortage of venture funds that seek to back women entrepreneurs. Take, for instance, Arlan Hamilton’s Backstage Capital (which backs people of colour and LGBTQ entrepreneurs, in addition to women).

Nor is there a paucity of initiatives to tackle the gender funding gap. Cowboy Ventures’ Aileen Lee launched non-profit organisation All Rise in April this year to help address the lack of diversity among investors and founders.

So, when a new initiative, The Billion Dollar Fund for Women (TBDF) was launched this month, one had to ask – what was different about it?

For one, TBDF builds on the foundation of these initiatives. Backstage Capital has partnered with the initiative and so has Springboard Growth Capital, an accelerator focused on women entrepreneurs that has seen its 730 companies raise $8.6 billion in total.

“We’re like a network… We’re not here to make direct investments, we’re more of a consortium for this first phase,” says TBDF co-founder and managing partner Sarah Chen.

In that first phase, expected to last through 2020, partners will commit to an incremental goal to accelerate access to funding for women entrepreneurs and women founded and led companies. In the next phase beyond 2020, TBDF will ask its partner funds to re-invest their initial investment in women-founded businesses. And the cycle will be repeated until a total of $1 billion incremental dollars have been invested.

So far, the consortium has secured pledges of over $460 million from global investors including Gobi Partners (which made a $50-million pledge), Golden Gate Ventures, Rethink Impact, SoGal Ventures and Different.

This is just the start, said Chen, who hopes that TBDF could spark a conversation among legacy funds including institutional investors, pension funds and family offices to invest in women-led businesses.

The focus of TBDF is not just to increase investments into women-founded companies, but also to include these companies in deal flow and highlight them to the investment committee. Last but not least, shall the company fail to secure funding from these funds, they need to be given constructive feedback to help them improve.

“We know that when you’re forced to give constructive feedback, you have to ensure your methodology is right. Because when you’re investing in early-stage, sometimes you invest in the team when there is barely a product-market-fit. That’s where bias and unconscious bias come about and that’s what we’re trying to address,” Chen explained.

Chen, who started off as a law graduate from King’s College London and was handpicked to start the corporate venture unit of Malaysia-based conglomerate Sime Darby, has previously co-founded Lean In Malaysia, a women-led non-profit established to empower women community.

In a conversation with DEALSTREETASIA, Chen shared some of her thoughts and observations across the startup and VC world, and how the newly-launched TBDF aims to address the gender funding gap.

Edited excerpts:

How does TBDF work?

It’s not a closed fund, it’s a consortium of funds. We’re like a network. Like when Gobi Partners’ Shannon (Kalayanamitr) knew that I was doing TBDF to tip the scale, she had a conversation with the other partners and committed $50 million to us.

The idea is that we’re working with all these funds as a partner to drive the level of conversation at a catalytic level. We’re not a single fund where we might be limited to day-to-day checks and bounces. We’re part of a bigger conversation to then take it forward to institutional investors. We want to make sure that as a group, we’re representing the global voice and have the conversation of reallocating capital to women entrepreneurs.

So we’re asking the partners who pledge with us to increase their overall investment in women founders and C-level committees. We also asked them to ensure that female founders be included in the deal flow consciously because one of the issues that we’re targeting is that we don’t believe it’s a pipeline problem but an access-to-capital problem.

Women create businesses twice at the rate as men, but they’re not in Silicon Valley because it may not be a suitable environment for everyone but they’re driving businesses. So we’re asking the funds to ensure that there is funnelling being done into their deal flow and they be recommended after due diligence to the investment committee.

Finally, if they are rejected, make sure they’re given constructive feedback. We know that when you’re forced to give constructive feedback, you have to ensure your methodology is right. Because when you’re investing in early-stage, sometimes you invest in the team when there is barely a product-market-fit. That’s where bias and unconscious bias come about and that’s what we’re trying to address.

Our initial goal was $100 million by 2020, but we’ve already got $460 million worth of pledges. So, we aim to have $1 billion in the next decade.

So how do you farm out those funding applications received?

We’re not an angel network. But we work with angel networks and we even have a fund of funds structure, so we will redirect all the applications to the funds that we’re working with. And this is already happening, with a female entrepreneur in Indonesia and she’s been redirected to one of our partners, Teja Ventures. We’re not here to make direct investments, we’re more of a consortium for this first phase.

Frankly, we’re very surprised by how supportive a lot of people are. We started with the low-hanging fruit – our friends. Gobi Partners signed within 24 hours. That’s a sign that we’re progressing but we will need to continue to have more conversation.

We’re talking to a bank in Asia that has a corporate venture unit – one pushback is that the bank can’t specify an amount for the pledge, even though they have a conscious effort to include women in their investments but they can’t bolt down to a specific amount. So how do you convince them?

We’re not in a position to police everyone but we’re here to push such conversations.

Coming from an opposing perspective, why would we need a women-focused fund at this age and time?

Yes, it’s 2018 but the latest data shows that VC money that went into women founders in the US – an advanced market in the world – is only 2 per cent out of $85-billion. So, are you saying that these entrepreneurs are not there? We disagree, they’re there. It’s just that they’re not getting the access to the capital that they need. So, it is really time that we drive this awareness and theme.

At the end of the day, I’m in a similar position that I’m not here to say we’re better than the other. But it’s 2018, and how can I be the only woman on the founding team of Lean In Malaysia? And how can it be that in Malaysia, only 5 per cent of corporates have women CEOs? I think it’s a necessary endeavour to ensure that the playing field is level.

The next stage is that I hope I’m not going to be referred to as a female entrepreneur because I’m a damn good entrepreneur. Unfortunately, for now, the [gender] lens has to happen but moving forward, I hope this would fade away.

I also hope the fund of funds structure might be a solution for large legacy funds who are managing tens of billions but still want to commit to investing in women entrepreneurs. There are studies show that first-time funds that invested in diversity have outperformed legacy funds.

What would be the ultimate goal of TBDF?

The ultimate goal would be to mobilise a billion dollar to women entrepreneurs in the next decade. What we want to also make sure is that it’s easy to commit a number but we will do our due diligence in the years to come along with all the data points.

The goal is hopefully, for us to be that voice to reallocate the larger capital. Sure, we have a billion dollar, but there was $85-billion in VC money last year in the US, how do we tap into that? So we need to have that conversation with larger investors – institutional investors, the sovereign wealth funds and family offices. The dream is that we will be able to bring them to the discussion table.

How do you see gender diversity being played out in this part of the world?

I’m very hopeful for Asia and Southeast Asia because in terms of the market, it’s not saturated yet and there are more opportunities. And for consumer growth – who drives the consumption decision? So, there’s more justification that women be part of the game, and they have to be. Asia has a lot of room for us to learn from developed markets like the US. But what we will be against are the cultural setbacks and stereotypes. I come from a traditional Chinese family, so I can tell.

So, how are you going to drive the change if there are still certain cultural setbacks that are holding people back? For example, women are judged not based on the success of their career but whether they have a ring on their finger? It’s pretty unfortunate. Think about this construct – if you’re constantly being judged this way, how is there going to be any real progress? Let’s have that open conversation. To have a productive workforce, you have to have that diversity. For me, it’s the diversity of opinion, it’s not about male or female.

After founding Lean In Malaysia, I have also had to lean into my career. What changed for me was that I had a coffee with a vice-president when I was with a Malaysian corporate, Sime Darby. He then turned the coffee session into a job interview and I was one of his first hires with a legal background into the venture capital team. For Sime Darby, the unit started as a strategy paper but now has turned into a VC unit investing into strategies for innovation and technology.

You’re a law graduate. Did you ever think that you’d become a VC or an entrepreneur?

I used to want to work in the corporate law sector and when I had my internship with Baker McKenzie in Chicago, I was actually more interested in talking to the entrepreneurs. I didn’t feel inspired by the legalities of the paperwork. In a way, I was drawn into business. Also, I came back to Malaysia to help run my father’s business when he was ill and I learnt a lot. He had cancer and passed away, so I wasn’t doing great in running the business as a 21-year-old CEO back then.

But I realised that I can do it, I’m good at closing deals and bringing in the money. My father’s friend also mentored me in closing business deals. Having said that, I never regretted going into law because I was hired into the VC unit due to my law background. Although I was a young chiku (girl), I have a law background and the first check I worked on was a $30-million check.

You mentioned you came from a traditional family. So what gives for you and your “radical thoughts”?

My immediate family is quite supportive of what I do. My mum came from southern Malaysia and didn’t know how to speak much English back then. But she worked her way up when she was a secretary, to the marketing department and then as the CEO of a company. I saw it through a role model and my father’s support for my mum. I was always encouraged to speak up, and I never really saw myself as a female, per se.

But when I went into the corporate world, it’s entirely different from the world that my father brought me up in. And my ambition and loudness of views were not welcomed – it was frowned upon. When I saw that disparity, I think it’s something that needs to be changed. Even with Lean In Malaysia, we worked with whatever resources that we had. We got a friend to film a video of us talking about women and leadership, and it got so much traction from major corporates and even the government. So, now that I’ve progressed further, I need to do more.

Based on your observation, how is the Malaysian startup ecosystem doing?

That’s a loaded question. From my observation, I think we have a lot of potential if you recall the Rocket Internet and e-commerce boom. There’s a lot of potential because mobile penetration in Malaysia is 110 per cent and the increase in urban population that has a higher purchasing power. Let’s also not forget that Grab started in Malaysia. Although it’s kind of sad that they chose Singapore as their base now but it speaks volumes about the structural issues we have in Malaysia.

There’s always that interesting perspective, many chose Malaysia as a base to set up their businesses because of the ease to assimilate and access to Singapore and the rest of the region. Malaysia can be the epicentre of the startup ecosystem in Southeast Asia but we need everyone to play their role. One of the factors that the ecosystem is lacking is because the corporates are still operating an old model and are afraid to back startups. I’m hopeful that with the new government, there will be more encouragement for innovation, especially from the top.

Also Read:

The Billion Dollar Fund For Women secures $460m in pledges to fight gender funding gap

Anthem Asia to hit final close of $50m SME venture fund in 12 months

Female investment bankers in Malaysia are shattering the glass ceiling in their heels

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.