How venture capital funds are reinvesting in women
Startups founded by women receive less than 3% of an approximately $80 billion cache of venture capital funding annually. Some venture capital firms are hoping to change that.
Northwestern Mutual's funding arm, called Future Ventures, is dedicating $20 million in funding to invest toward female-founded companies. The investment is part of a $150 million fund launched in May to help startups focused on creating financial security for clients.
“I want to make sure that we are creating opportunities for female businesses so that they have another channel,” says Northwestern Mutual COO Souheil Badran.
Business owners go through a four to six week rolling application process where they can submit a business plan and if selected can receive an initial investment of up to $5 million per opportunity, according to Badran.
“We'll understand what market problems they're really trying to solve and that'll give us an opportunity to decide whether we move forward or not,” Badran says.
Northwestern Mutual already received a handful of applications, he says.
Other financial institutions are also making moves towards improving the opporuntities for women.
For example, Morgan Stanley selected 10 startup companies in 2018 for the 2nd cohort of its Innovation Lab, targeting female founders, according to the firm. Participants receive cash contribution of $200,000 and receive between 3-5% of equity interest.
This is the second year the Wells Fargo’s Innovation Group will hold a Female Founders in Fintech competition. The top three finalists will received cash prizes.
While similar funds are readily available to entrepreneurs, not enough of them are specifically focused on advancing female-led initiatives, Badran says. Startups founded by women received less than 3% of global investments in the second quarter of 2019 — marking the fourth straight quarter such firms received 3% or less of all funding, according to Crunchbase News.
Gender biases and a lack of gender diversity among investors may be partly to blame, according to a report by the Center for American Entrepreneurship from 2017. However, a lack of female venture capitalists has also been identified as a likely contributor to the women’s funding gap. An estimated 9% of general partners — the people generally making investment decisions — at leading U.S. venture capital firms were women, according to the report.
A lack of female-led startups affects the overall quality of service within the fintech space, says Badran.
“When we think about our core business at Northwestern Mutual, a lot of the financial decisions are also driven by women,” he says. Since launching in 2017, the Future Ventures Fund has invested more than $50 million in 18 startups.
“I think that women in general will bring that extra view up — how to deal with things day to day — especially when it comes to fintech,” Badran says.