Supporting Female Founders through Private Investing

Posted March 14, 2023 in Lifestyle by Ashleigh King

Northern Trust has created a community where women can come together, share their experiences, and learn from each other and experts on the topics that matter most. From building a career to designing a meaningful legacy, or navigating a major life event like retirement, divorce or widowhood, having the resources to establish new goals and make confident financial decisions is essential to our success. Because when we come together, the possibilities are limitless. Learn more about Elevating Women.

The difficulty that female-founded businesses have seen in raising capital has given rise to a powerful, resilient and purpose-driven community of female founders and funders. Their commitment to breaking down barriers for female entrepreneurs is gaining momentum as investors increasingly embrace the true value of diversity in business. And it’s not a trend; It is the new normal as tremendous excitement on the entrepreneurial side meets growing interest among investors.

Investing in female founders pays it forward: These entrepreneurs develop track records that attract capital and they build skills and experience key to continued capital growth, while creating important networking opportunities for each other.

The most important questions for investors are “how?” and “how much?” Investing in women opens up new opportunities to support other diverse entrepreneurs while building wealth.

Spotlight On: Whitney Wolfe Herd, Bumble CEO

Under the leadership of Whitney Wolfe Herd, Bumble built a majority-female leadership team to strengthen and professionalize Bumble’s operations and invest in new features. These enhancements ultimately helped take the company public in February 2021 in a historic initial public offering valued at $14 billion. With that IPO, Wolfe Herd became the youngest female entrepreneur to take a company public in the United States.

To help other female entrepreneurs succeed, Bumble recently launched Bumble Fund, focusing on early-stage investments in businesses founded and led by women of color and other underrepresented groups.

A Spectrum of Investment Options

An alternative platform that unites leading institutional investors to generate unique and differentiated sources of risk and return provides a real diversification benefit to portfolios. The firms Northern Trust works with have made meaningful commitments to increase funding and support for women-owned businesses and female fund managers. Each of these firms underscored the material benefits of diversity at the portfolio company level. Some of the unique attributes and value female leaders may contribute include:

  • An inherent understanding of the need to support and promote diverse perspectives, which contribute to more effective and innovative decision-making processes, stronger governance and improved financial outcomes
  • A history of overcoming hurdles and stereotypes, uniquely positioning them to handle the ups and downs of an early-stage company
  • A tendency to openness in asking for different thoughts and opinions
  • Leadership in key female-oriented sectors such as women’s health, education and recruitment

It is critical to consider the risks involved in each unique company and leader. Even as women add value in many ways to leadership roles, some characteristics, such as the serial entrepreneurship track record sought by many institutional investors, can be more difficult to find in female founders.

Spotlight On: Three Firms Committed to Female Founders and Funders

50 South Capital is committed to diversity, equity and inclusion consistent with the corporate values of Northern Trust. The team has broadened the tent of inclusion to provide more opportunities for investment, and to incorporate diverse perspectives. Whether it is supporting female founders, or women-run venture capital funds, 50 South Capital is actively engaged in activities aimed at leveling the playing field of opportunities consistent with the belief that this will ultimately accrue to the benefit of investors. In their view, it is a virtuous cycle: when venture firms have more diverse teams, they tend to back more diverse founders.

Blackstone believes supporting women and female-founded or owned companies is critically important to its culture. The company is committed to driving gender diversity at the firm and across its portfolio, where its scale allows for a massive impact. In fact, 50% of the independent private equity board seats staffed in 2019 were with women.

Carlyle has prioritized diversity, equity and inclusion, both internally and in portfolio companies, leading to increased value creation. An analysis of portfolio companies found that when the board was diverse, the average annual earnings growth was 12% higher than companies without a diverse board. More than half of Carlyle’s $246 billion in AUM is managed by women, and the company has formally linked progress in diversity, equity and inclusion into its compensation process.

Putting Words into Action

A key issue with any private investment is the high risk associated with failure. Even the best-performing venture funds that focus on maximizing return over time and with no constraints on their investment universe lose money on more than 50% of the investments.

Narrowing that universe to a single category, such as female founders or female-run venture capital firms, can present an even more challenging environment. As investors, we know that risk and return are related, so we must manage, instead of avoid, risk.

There are some key considerations that can help:

Size: First and foremost, assess how large of an allocation and the amount of illiquidity you can absorb as an investor, and still meet your high-priority financial goals over time. It is critical to appropriately size any investment in private assets, but particularly because those investments may carry an even higher risk.

Structure: For most investors, we believe the best way to gain exposure to private investment opportunities is through a fund structure, and not direct investing. The fund structure will provide needed diversification at the deal level and provide important deal due diligence. General partners also bring tremendous experience and expertise to bear.

Diversification: We recommend investing in multiple funds, or in fund series, to gain vintage year and important sources of diversification. It also makes sense to invest across a spectrum of opportunities: first-time founders/early stage/seed stage, but also balanced with more seasoned entrepreneurs in order to offset risk.

Contact us to learn more about how private investing may fit into a custom goals-driven wealth management plan.

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