Jun 05, 2021

How empowering visionary women leaders can sow prosperity

spearcapital
Investment
diversity
runwaysale
Bryan Turner, Partner, SPEAR C...
5 min
Following investment in ecommerce retailer RunwaySale, made up of 77% women, Bryan Turner, Partner at SPEAR Capital argues the business case for diversity

Everyone knows that any plant has three essential needs in order to grow – water, sunlight, and nutrients – but a horticulturist understands that each plant has varying and specific needs in order to grow well. We can apply this same reasoning to business investment, as the ability to identify the right characteristics in a business can be critical to a successful investment venture.

Investment in startups carries a uniquely high risk as these companies are often very young and are faced with a high rate of failure, calling on investors to focus more closely on product differentiation, competitive advantage, and identifying strong industries to invest in. However, private equity seeks to acquire meaningful stakes in growing and well-established companies, and so must also take into account an ‘x’ factor to enable success.

One of the most significant characteristics of a successful business lies in its leadership, all the way from the C-Suite to the lowest managerial levels. By looking for great leadership, investors would be able to identify opportunities that others may have missed and thus gain significant rewards.

In early 2020, cautious sentiment dominated the global private equity market but disruption in the past year has left investors hungry to find new opportunities in 2021. Identifying investment opportunities in great female leadership will not only open up new doors for investors but also reap benefits across several spheres, including helping to close the gap in funding for female founders and enabling an increasingly diverse business environment.

While female-led startups and companies present a number of opportunities for investors, they receive very little funding or capital. In 2020, startups led by women received only 2.3% of venture capital funds and 82% of startups funded by private equity did not even have a female co-founder on their team despite the proportion of female co-founded companies having doubled since 2009.

A view of where the opportunities lie

The business case for diversity is largely well known, however McKinsey’s latest diversity report found that the relationship between diversity on executive teams and the likelihood of financial outperformance has strengthened over time.

Additionally, it’s been proven that, as team diversity increases, so too do returns on funds and companies. A study by the Boston Consulting Group observed that if women participated equally as entrepreneurs, the global GDP could rise by 3% to 6%, injecting up to $5-trillion into the global economy. Other research has also shown that startups with at least one female founder raise 21% more VC funding over time than companies headed by all-male teams.

But, it’s important to note that investing in women-led business alone won’t move the needle forward: we need to be investing in the women leading the business themselves.

So what does great leadership look like?

To invest in great leadership, investors first need to be able to identify great leadership and then be willing to cultivate it.

The first, and arguably the most important, leadership quality investors should take note of is a leader’s passion and commitment to their vision along with the ability to get employees invested in and working towards that vision at the same time. This comes from real belief in their business backed by experience through research and trial-and-error as well as courage. Genuine, meaningful expertise is built through obsession and, when a leader is confident in their vision and it is backed by evidence, this is a good sign of a secure investment.

Another important quality to look for is transparency and communication. This ensures that there is a clear view of where the business is at and where any challenges lie that could be improved upon, providing investors with an objective lens over their investment and enabling a better relationship between the two that can help steer the business in the right direction for both. Candour is vital and there needs to be a real level of openness by leadership towards investors.

Today’s environment has also meant that softer leadership skills and qualities have risen in importance. Good leadership also means that leaders must be empathetic and facilitate an environment that puts people first and where employees feel they can be their authentic selves and belong. A culture of belonging is vital to facilitating employee buy-in of any leader’s vision and therefore the ability to achieve that vision.

Visionary leadership bears fruit

In 2020 we made a significant investment of over US$5-million into Cape Town-based ecommerce retailer, RunwaySale, because we recognised and believed in the quality of leadership of co-founder and COO Elmien Hammerschmidt and her passion for the business she’d built from the ground up. A significant factor in our decision to invest was that her investment into leadership could be seen across the entire business which employs nearly 150 people, 77% of whom are women.

When COVID-19 struck, that leadership and drive helped to steer the company in the right direction, quickly identifying new opportunities for growth, such as an expansion into homeware and other categories during a time when ecommerce activities in South Africa were heavily restricted and national lockdown measures were difficult to navigate.

The company’s leadership team quickly recognised the need to digitally transform over the past year. This led to a substantial amount spent on tech, such as refining the algorithm it uses to become smarter in the way it buys and sells, making the business more resilient and agile. Great leadership has resulted in RunwaySale’s ability to compete with traditional brick and mortar stores where it was previously only competing with a small group of other online fashion outlets.

The well-proven leadership displayed by RunwaySale also meant that, as investors, we could be more comfortable introducing flexibility into our investment portfolio and adapt to a changing playing field along with how and where we invest as all of the company’s achievements would not have been possible without that leadership to guide it through disruption and change.

As investors, we’ve recognised that great leadership is fundamental to making good investments and investing in great female leadership is crucial to driving innovation, closing the gender gap, and ensuring that female-led businesses have access to better funding.

Share article