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TOP TIPS - Considering Women-led Companies for Investment Diversity

It is a curious thing that for an industry in which success largely lives or dies on the strength of diversity, it has taken a long time for the finance sector to cotton on to the value inherent in investing in female-founded and female-run companies.

Here we take a look at the important issue of gender balance in the investment world and consider what it might mean for retirement planners and their portfolios.

Look at venture capital stats

According to a recent report from PitchBook, women-founded firms account for just one in five venture-capital backed companies. While the amount of money invested in these female start-ups may have more than doubled in the past year, from $22 billion in 2018 to $46.3 billion in 2019, and is many times the $3 billion invested in 2010*, this investment level is still some way short of gender parity.

Although this is partly attributable to male dominance of venture capital firms (88% of partners are men**) it may also be due to familiarity bias and risk aversion: quite simply, VCs are more accustomed to investing in men so may have reservations about investing in women.

However, ignoring women, could come at a cost. After all, women make up more than half of the world's population; if VCs choose not to invest in women-led start-ups they also risk losing out on the opportunity to make money from female customers.

The valuations tell a story

One thing is clear: women-led companies are showing successes. In the past twelve months alone, a number of women-founded start-ups have achieved valuations in excess of $1 billion. These include the firms The Real Real, Glossier, Rent the Runway and Away.

And, on average, women are better at paying back their investors, with female-led start-ups typically undergoing acquisition or going public in less than six years, compared to 7.4 years overall.***

Women-led companies as a new opportunity for diversity

Morgan Stanley recently surveyed ventured capitalists and found that 60% believed they have invested too little in female-led companies and the same survey found that 83% expressed a willingness to prioritize investment in female-led companies.**

This is not to say that retirement investors should be actively looking to invest in start-ups or other companies just because they are woman-led. Rather, it is likely to be a good sign if an investor's portfolio is well-diversified from all angles, including from a gender perspective. Like so many other aspects of investment, diversity is key; but not diversity for diversity's sake alone.

Blacktower in the US, for retirement and investment advice

Blacktower in the US can help you ensure that your investments are sufficiently diversified while also being aligned with your cross-border interest as a foreign national in the United States.

Whether you want to optimise your US retirement accounts, manage your UK pension, arrange a SIPP transfer or simply wish to discuss your assets and portfolio, contact Blacktower in the US today.

 

Disclaimer: The provision of information in this communication is not based on your individual circumstances and does not constitute investment advice. Blacktower makes no recommendation as to the suitability of any of the products or transactions mentioned.


* https://pitchbook.com/media/press-releases/pitchbook-all-raise-report-on-venture-financing-in-female-founded-startups-shows-progress-yet-continued-gender-inequity Accessed 12-12-19

** https://www.morganstanley.com/ideas/venture-capital-funding-gap Accessed 12-12-19

*** https://edition.cnn.com/2019/10/23/perspectives/morgan-stanley-entrepreneurs-venture-capitalists/index.html Accessed 12-12-19

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