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Backing the jockey: the value of investing in great female leadership

Backing the jockey: the value of investing in great female leadership

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An important skill for investors is identifying great leadership. Globally, less than 5% of venture capital went to female-led start-ups in 2019, which does not reflect the number of businesses already run by a woman. Bryan Turner, Partner, SPEAR Capital, explains how to focus on identifying and nurturing great female leadership.

There’s a saying in start-up investment circles that goes: ‘Back the jockey, not the horse’. The idea is that a great entrepreneur can take a moderately good idea and ride it to outstanding success. While this attitude is a little more tempered in the private equity space, where we’re sometimes looking to turn struggling businesses around, the point still stands. If a business is to be successful, it needs to have a solid leadership team.

This is true for general investment success but is especially so when it comes to reversing some of the major disparities faced by female-founded and run businesses. By focusing on leadership, investors can find promising businesses that others have turned down and potentially reap serious rewards as a result.

A bad state of affairs

Before digging into how investors can best go about identifying great leadership, it’s worth looking at the current state of affairs.

Globally, less than 5% of venture capital went to female-led start-ups in 2019. That wouldn’t be a problem if only 5% of businesses were founded and run by women, but that’s simply not the case. In the UK, for example, nearly a third of businesses are run by women. It’s also simply not true that all 95%+ of start-ups that are male-owned are more deserving of funding.

Additionally, investors are missing out on a major opportunity. According to a study by the Boston Consulting Group, if women participated equally as entrepreneurs, the rise in GDP across the world could be between 3% to 6%, adding up to a US$5 trillion injection for the global economy. Other research has also shown that start-ups with at least one female founder raise, over time, 21% more VC funding than companies headed by all-male teams.

The link between racial and cultural diversity and start-up success is similarly well established. A study by the Kauffman Fellows Research Centre found that start-ups with diverse founders outperform others by 30% when they go public or are acquired, providing improved returns for investors.

While there is naturally a lot of attention paid to start-ups, the same trends are true across business maturity levels. Just 5% of FTSE 100 companies, for example, have female CEOs. It’s also clear, however, that simply investing in female-founded businesses for the sake of doing so will only take you so far.

Finding great leadership

While setting targets for investing in female-founded and run companies can help clear some of the gender bias that investors have, it doesn’t guarantee success. Instead, investors need to focus on identifying and nurturing great female leadership.

The first is relatively easy to identify, provided investors are willing to overcome the subconscious bias they might have towards male founders (even if they happen to be women themselves).

One of the most obvious qualities to look for in any leader is self-belief. It’s important to note, however, that I’m not talking about unfounded confidence. Real self-belief comes from having done your homework and stress-tested your concept, product or business plan. Ultimately, having the courage to back yourself is important. Even more important is being able to back up your belief with evidence. Leaders who understand that and can demonstrate why their business works are more likely to succeed in the long run.

It’s also important, however, to look for leaders who can take (and give) candid feedback. People tend to hold back on giving candid feedback to women. When it comes to leadership, that sometimes means missing out on aspects of the business that could be improved upon.

Leadership that can give and take this kind of feedback is capable of looking beyond the merits of their business and recognising that there are flaws that need to be worked on. It’s also capable of standing up for itself when needs be and ensuring that the business gets everything it should out of any received investment.

RunwaySale stands tall

A great example of this kind of leadership from within our own portfolio is RunwaySale. Led by Co-Founder and COO, Elmien Hammerschmidt, the Cape Town-based e-commerce retailer employs nearly 150 people, 77% of whom are women.

When we decided to invest more than US$5 million in 2020, Hammerschmidt’s leadership and passion for the business she’d built up were significant factors. That focus on leadership proved to be prudent when COVID-19 struck and e-commerce activities in South Africa were severely curtailed.

Hammerschmidt guided the company through this particularly tricky time, overseeing its expansion beyond fashion and into homeware and other categories. The company has also been much smarter in the way it buys and sells, refining the algorithms it uses. Over the past year, it’s spent substantial amounts of money on the tech in the background, making it much more nimble and less likely to miss a good deal.

The results speak for themselves. Whereas previously, RunwaySale was competing with a small cohort of other online fashion outlets, it’s now competing with traditional brick and mortar stores.

The level of agility displayed by RunwaySale had to be mirrored by us as investors too. As the playing field changed, thanks to COVID-19 and lockdown, we knew that we had to adjust our assumptions straightaway. Importantly, we realised we shouldn’t be married to what our investment case had been just a month before. We probably wouldn’t have felt as comfortable doing that if we didn’t have the working relationship we do with Hammerschmidt’s leadership team at RunwaySale and the wider board.

Backing winners

It’s important to reiterate that RunwaySale wouldn’t have been able to achieve those things if it didn’t have the leadership to guide it through the necessary changes. We recognise that as investors and believe that it’s pivotal to making good investments.

That’s true whether we’re investing in businesses with male or female leadership. But when it comes to closing the gender gap and ensuring better funding for female-founded and run businesses, it’s critical.

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