Why Investing in Women Entrepreneurs is Key to Social Impact: an Interview with International Finance Corporation's Hela Cheikhrouhou

Female enterprises are more likely to create social impact through the businesses they create and operate. Whether they generate jobs through their business for other women, invest their income in the education of their children or support others in their community, investing in women has a broader social impact as it benefits families, communities and, ultimately, societies.

Hela Cheikhrouhou, International Finance Corporation's Regional Vice President for Middle East, Central Asia, Turkey, Afghanistan, and Pakistan, shares what she has learned about the importance of supporting female entrepreneurship through her esteemed career working with private and public sector leaders in developing countries across the globe.

Q: How might opportunities for female-founded businesses differ from traditional investments?

Global research has allowed us to understand the unique characteristics of female-founded businesses compared to male-founded businesses. That, in turn, has allowed us to understand how investing in female-founded businesses might differ from investing in their male peers.

• Sector concentration: We know from World Bank research that male-owned enterprises dominate manufacturing and agriculture, whereas female-owned firms tend to concentrate on trade, textile, retail, and food processing. Those sectors (where we typically see female-founded businesses concentrate) are more crowded, and businesses there tend to have lower profit margins than sectors where we see a high concentration of male—founded businesses. Investors who make investing in women a deliberate strategy must understand the intrinsic nature of these sectors and have the appetite and patience to seek out female-founded firms in these sectors.
• Growth constraints: female-founded businesses tend to be smaller and grow more slowly than male-founded peers. This is partly due to the sectors they operate in and partly due to gender-specific structural and systemic barriers they face. Female-founded businesses use, for example, far less external finance than male-founded businesses simply because they don’t have access to it. This also means that their growth accelerates dramatically once these systemic barriers are addressed. Investors who make investing in women a deliberate strategy will need to understand these more systemic growth barriers and address them before extending the financing. However, the return on that non-financial investment and support to female-founded businesses can be significant.
• Attitude differences: Women tend to have lower growth aspirations than men and prefer a “slow and steady” business to a fast-growing or risky business.  Some of these preferences are explained by differences in risk aversion or dislike of growth-associated stress. Men and women also differ in their concept of what defines success. While men describe success as achieving goals and higher profits, for women, success also means building relationships with clients or doing something meaningful, which is often related to impacting their communities. The social implications here are an exciting opportunity proposition for investors, especially those who are impact investors or those in fragile contexts.

Q: How do you measure the impact of your investments in female founders, both from a financial and a social impact standpoint? 

There are, of course, the types of business outcomes and financial KPIs that any investor will need to look at: sales revenue, profits, return on investment, and return on equity. However, this narrow focus overlooks the actual impact on these female founders’ lives, their families, and communities. In fact, the more exciting KPIs are around the social impact that many of these female-founded businesses create. Whether they create jobs through their business for other women, invest their income in their children's education, or support others in their community, investing in women-founded ventures often has a broader social impact. 

Q: How can advocates for female founders help women navigate an environment dominated by men and cultural norms?

There are several things we can do directly  to help female founders navigate an environment dominated by men and cultural norms:

• It is critical to get female founders access to investor networks and then help them position themselves vis-a-vis the type of investor that reflects the mandate and values relevant to their business. Why? Because the space is often a tight-knit boys’ club network that is hard to break into. Networking is vital for accessing finance and customers, but it is more challenging for women.
• Supporting female investors and connecting them to female-founded startups is crucial. Why? Because female investors are more likely to invest in companies or long-term projects that aim to have a positive social impact rather than looking for a quick transactional relationship. They are also less likely to be gender-biased. They are, therefore, also more likely to see and invest in women-founded businesses. 
• Female investors tend to be more interested in ESG-type businesses and more supportive of women founders. Currently, only about 15% of all venture capital general partners are women. This glaring absence of a female perspective in the venture capital space invites unconscious biases.
• Support networks of women entrepreneurs, both formal and informal, where they come together to share experiences and provide mutual support, are essential. Why? Because the entrepreneurial journey and startup ecosystem can be very lonely for a woman. Mutual support and friendships that form between women in the startup ecosystem can be game-changing.
• Institutional investors need to invest more in funds and accelerators that support female founders—in other words, invest using a gender lens.

Beyond these straightforward actions, there are broader, systemic, pressing things we need to do to address structural gender imbalances in the startup ecosystem.

• Increase awareness about the benefits of investing in women-led startups. Raise awareness about the potential of women entrepreneurs by raising awareness among investors and entrepreneurship support organizations (ESOs) about the potential of women-led startups and the business benefits of investing in them, as well as making high-potential women-led startups more visible to investors and connecting them.  It’s also essential to equip investors and ESOs with knowledge, tools, and methodologies to apply a gender lens to their deal sourcing and investment process,
• Build the capacity of ecosystem players to address the unique challenges facing women-led startups. I believe fund managers are committed to being part of the solution. They may have some unconscious bias or may not have the tools to target female entrepreneurs with support and finance. We can utilize our knowledge and tools to help them.
• Promote education and training for women entrepreneurs.
• Encourage more collaboration between the public and private sectors to support the ecosystem of entrepreneurship with a focus, for example, on connecting public universities and their graduates to entrepreneurship incubation programs for female graduates and work with public and private incubators and accelerators.

We must remember that female enterprises are more likely to create social impact through the businesses they create and operate. Whether they generate jobs through their business for other women, invest their income in the education of their children or support others in their community, this has a broader social impact as it benefits families, communities and, ultimately, societies.