These regression models displayed a clear effect: impact investment firms with a higher proportion of women in the top management team took significantly more risks in their investment decisions. The average team in the sample (which has 1.7 female team members) scored 12 on their measure of investment risk, whereas an investment firm with 3 women on its team scored 14.6. A team without any women, by contrast, took risk to the score of 9.5. In other words, in this industry, teams with more women take significantly more risk than teams dominated by men.
The researchers then tried to understand what was behind these results. They first corrected for potentially confounding factors such as portfolio size and possible reverse causality, to check the findings’ validity. The effect remained. Likewise, the women’s previous work experience, whether it was in investment banking or an NGO, didn’t change the effect of the findings.
In follow-up interviews, several respondents suggested that women – more than men – are willing to take a chance when it comes to social-impact issues. One investor said, “In this sector, you are not being challenged on your financial success only; this makes women push the boundaries more.”
What can we learn from this?
“We believe these findings are important,” says Dr Alemany. “Social impact is a deliberate goal for these firms, something which is increasingly true for firms in general. Businesses aren’t just judged on their financial performance any more. Environmental, social and governance (ESG) factors are part of the equation. And research by my colleague Ioannis Ioannou and others is starting to show that those companies that take ESG factors into account have better long-term financial performance.”
“Most, if not all, significant strategic decisions have non-financial implications,” points out Dr Alemany. “They may not be as easy to quantify as financial implications, but they’re often just as important. Our findings demonstrate that women take such risks into account and are willing to take bets on those grounds. Firms that don’t include female representation in investment and decision-making teams might therefore themselves be missing part of the equation when looking at risk.”
Many venture capital firms are reluctant to recruit women because of their supposed risk aversion. But this means, potentially, social risks might not be sufficiently taken into account, and opportunities for a positive impact beyond mere financial success could be missed.
“I think there’s a greater willingness among women take risks on a person or mission,” says Bertram Smith. “It’s about having an understanding of people, their drive to succeed – resonating on a human level with someone who believes wholeheartedly in what they’re doing. That’s the best part of the job!
Investing for impact as well as financial return
“On a personal level, every time I invest, I ask myself the question: does this need to exist? I feel a responsibility to do so. There could be a multitude of investments that would make sense purely from a financial return perspective where I answer no – but the future offers both, so why not find those companies.”
Brighteye is the largest and most active edtech fund in Europe, with $110m AUM and 25+ investments across nine countries. It invests at seed and series A stages in technologies that help people learn and grow, at every stage of life. Following a successful first close of €45.5m for its second fund, Brighteye will be announcing the second close later this year with a target of €75m. It is not strictly speaking an impact fund, but as so often now there is clearly an impact layer.
Bertram Smith says: “In my view, in five to ten years’ time, having some form of impact at the core of a business will no longer just be a social mission, but a financial imperative.”
Recalling her early career on the trading floor, a male-dominated, alpha environment, she says she loved the excitement but realised the environment was ultimately toxic. “There’s no way diversity can thrive. Any outside way of being or thinking is rejected. Diversity is more than an international cohort, it’s diversity of thought that is key.”
In investing too, there is a layer of how a woman “should” be that can get in the way. “As a man it’s much easier to be that strong personality, self-confident, talking about your risk-taking. If a woman does that it’s seen as brash. If you’re an investor you need to be likeable as well as impressive and respected, so that can be tricky.”
From her own experience in the industry she concludes, “I don’t think women are less risk-averse. That’s a cultural perception that has been perpetuated. There might be a greater element of empathy in how women invest but that is not the same as less risk-taking. If anything, it’s just more effective.”