Corporate investors hold the key to fostering inclusive entrepreneurship

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Ram Jambunathan, SVP and Managing Director, SAP and SAP.iO & Aytug Goksu, Project Lead, Digital Europe, World Economic Forum

• Corporations need to activate their venturing funds, as well as accelerator, incubation and procurement programs.

• In doing so they will drive the changes required to support women entrepreneurs.

• Focussing on women entrepreneurship and diverse leadership will pay off in terms of global GDP and greater yields.

Alarming headlines about women leaving the workforce during the pandemic abound. A quick Google on the topic will yield results including “How COVID-19 Sent Women’s Workforce Progress Backward”, “Women’s COVID-Fueled Exodus from the Workplace Hurts Us All”, “Why COVID-19 Could Force Millions of Women to Quit Work – and How to Support Them” from American Progress, Time and the Forum, respectively.

A side story which is not being so widely reported is how the pandemic reverse the meager gains women entrepreneurs have made in recent years.

In the US, it’s already happening. Pitchbook reports that in Q3 2020, quarterly venture capital funding for women founders dropped to a three-year low, even though overall venture capital activity was on a par with previous years. Between Q2 and Q3 last year, investment in women founders dropped 48%.

These losses make already dismal numbers worse. Women founder teams received only 4.3% of all venture capital deals in Q1 2020 – a drop from 7.1% in Q1 2019.

So far, investment levels in Europe are holding low but steady at 1.8% of venture capital going to all-women founder teams and 12.8% going to mixed-gender teams up until the end of October. But the threat of slippage in Europe – and globally – looms.

While COVID-specific dynamics have exacerbated the venture capital investment picture, women’s low representation on investment teams was already fueling the chronic opportunity gap. In 2019, just 3.4%of assets under management were held by women-founded VC firms, and only 3.8%were held by diverse-owned firms.

Rethinking and resetting the status quo on underrepresented entrepreneurs

The Forum’s Great Reset challenges us to rethink our economic, social and technological systems for a better world – to steer the market toward fairer outcomes, ensure that investments advance shared equality and sustainability, and harness the innovations of the Fourth Industrial Revolution to support the public good.

In such a context, corporations can activate their venturing funds, as well as accelerator, incubation and procurement programs to drive the changes required for the Great Reset, fostering inclusive entrepreneurship by:

• Increasing the percentage of women and underrepresented groups on their investment teams
• Increasing the percentage of investment (financial and non-financial) that goes to women and underrepresented entrepreneurs
• Activating additional business levers to fuel scaling of businesses led by diverse teams

Focussing on women has multiple benefits

Investing in women pays huge dividends for everyone. In COVID-19 and Gender Equality: Countering the Regressive Effects, McKinsey estimated that acting now to advance gender equality could add $13 trillion to global GDP in 2030.

It also returns greater yields than less targeted investments. Over a five-year period, for every dollar venture capital invested, women-led or women co-founded startups generated 78 cents of revenue while male-led startups only generated 31 cents (Why Women-Owned Startups Are a Better Bet). What’s more, on average, companies with more diverse leadership teams report almost 20% higher revenue from innovation. (How Diverse Leadership Teams Boost Innovation).

We should therefore view investment in women entrepreneurs as a powerful catalyst for economic recovery.

Addressing the gap for women is only one step toward generating more equitable outcomes for all. We expect that most levers that help women can also contribute to wider diversity efforts. Further studies investigating variations in impact between underrepresented groups would be welcomed.

Most conversations about improving venture capital’s diversity metrics don’t mention corporate investment at all.—Ram Jambunathan

Corporate investment an untapped gem

Corporate venture capital teams control 25% of venture capital activity (CBInsights CVC Report 2019) and accelerate hundreds of startups a year. It follows that they can drive significant change – both by investing more in women entrepreneurs and by growing the ranks of women on investment teams.

But their potential is largely untapped. Most conversations about improving venture capital’s diversity metrics don’t mention corporate investment at all; instead, they focus on public sector measures or generic steps any investor could take, such as adopting standardised pitch questions.

This is a missed opportunity, since corporations offer unique advantages to entrepreneurs. Their global networks of customers, partners and salespeople can rapidly increase demand for a startup’s product, especially when coupled with the corporation’s own purchasing power.

Tying these efforts to diverse procurement pledges can further boost returns for women entrepreneurs. At the same time, corporations can leverage their human resources diversity initiatives to grow women investment talent internally, and to recruit from outside.

SAP and the Forum’s Digital Europe community are developing an “actionable idea” to address the issue of diversity in European tech by providing a series of quick-win and longer-term actions that corporations can take to diversify their teams, their accelerator programs and their investment portfolio.

We are seeking corporate investment team members, diversity and inclusion experts, and women entrepreneurs to help us explore this opportunity via a survey and a design thinking workshop. If you would like to get involved, please contact DigitalEurope@weforum.org.