Supporting Female Founders Through Private Investing

Step into wealth-building with private investing, while supporting a new crop of female entrepreneurs.

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, who together are committed to breaking down barriers for female entrepreneurs. This commitment to female leaders is gaining momentum as investors increasingly embrace the true value of diversity in business.

A Spectrum of Investment Options

To provide a real diversification benefit to client portfolios, Northern Trust provides an alternatives platform that brings together leading institutional investors that generate unique and differentiated sources of risk and return. Each of the firms we work with has made significant commitments to increase funding and support for women-owned businesses and female fund managers. We reached out to some of these firms to better understand what is driving this demand and the associated risks, rewards and success stories.

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:

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

While there are many ways in which women add value in leadership roles, it is also critical to consider the risks involved in each unique company and leader. For example, most institutional investors often look for serial entrepreneurs who have a track record of success across multiple companies, and female founders are harder to find with this criterion.

Putting Words into Action

How can women interested in supporting other women gain access to these private investment opportunities and approach them in a way that complements their overall goals?

A key issue with any private investment is the high risk associated with investment failure. When looking at the universe of venture opportunities, even the best performing venture funds that focus on maximizing return over time and with no constraints on their investment universe actually lose money on more than 50% of the investments. When you consider narrowing the universe to female founders or female-run venture capital firms, that can present an even more challenging environment. As investors, we know that risk and return are related, so we cannot avoid risk, however we must manage risk.

There are some key considerations that can help to mitigate this risk:

• 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.

Supporting female founders is the ultimate “pay it forward” opportunity: these founders create track records that attract capital, they create important networking opportunities for each other, they encourage important skills and experience-building that is critical for continued capital growth in this important market. Just as there is tremendous excitement on the entrepreneurial side, there is growing interest on the investor side of the equation. This is not a trend: It is the new normal.

The most important question for investors is, how much? Once women are confident they can fund all of their lifetime goals, it opens up a whole new world of opportunity to support other diverse entrepreneurs while building their own wealth.

Learn more about how private investing may fit into a custom goals-driven wealth management plan.