Scale Investors' managing partner Samar Mcheileh has a clear message. Every year, the media reports on the fact that only 2-4 per cent of total venture capital funding goes towards women-led businesses.
But Samar says it's time for the media to flip the script.
"I think there needs to be a massive emphasis on the economic and financial performance opportunity, and less on the bad numbers of 2-4 per cent," she says.
"What we need to start putting out there is the tech opportunities. The companies in this country that have performed the best happen to be women-led - Canva, Airwallex, Mr Yum - they all have women in their teams, and they happen to be Asian women. We can show you a massive pipeline of these opportunities."
In this respect, Samar has skin in the game. Her firm, which used to be a non-profit and has now transitioned to a fully-fledged venture business that only invests in women-led startups, meaning at least one woman on the founding team with equal equity and decision-making power.
Missing Perspectives caught up with Samar Mcheileh to talk all things VC, gender and bias. We've reproduced that conversation below as a resource to stimulate your own thinking about the topic.
Missing Perspectives: Samar, thank you so much for taking the time to chat with us today. Let's dive in - what are your thoughts when it comes to the state of play when it comes to venture capital, gender and bias?
Samar Mcheileh: What has been missing for a very long time - particularly when it comes to venture, and this is global - is the design, the perspectives, the views, and service to 51 per cent of the population. That’s more people than India and China combined. We think about what we’re doing now as really about following the money and a confluence of trends. In Australia alone, you would have seen the piece at The Fin from Lucy Dean about the transition of wealth, and of the 5 trillion, 65 per cent is transitioning to women. Their spending power and investment decision power and the deployment of capital is really important.
We also know that women tend to invest more in social causes, they tend to invest more into their communities, and we’re really taking advantage of that trend. If you look at the global backdrop, there is a power shift in spending as well when it comes to global listed companies with most of them implementing a 40-40-20 gender target, which means 40 per cent women, 40 per cent men, 20 per cent everyone. What you’re currently seeing at a board level and an executive level is a severe lack of gender diversity. So that’s the money shift.
When you look at the market as well - and who is being underserved - as customers and consumers. If you look at healthtech for example - clinical trials were not done on women until the 1990s. There are various reasons and positions on that, but I heard the CEO of the CSIRO say recently that tests are still done on male mice. Decisions where it’s almost like “well, we’ve always done it that way, so we’ll just continue to”.
Then it turns to “who is best placed to solve these problems for these huge addressable markets, and this massive shift if power in spending?” And we naturally think women-led teams are best placed to solve for female problems, and for the world’s biggest problems. We think there is no substitute for lived experience.
We’re not saying men can’t solve for female markets, but there's a great example in our portfolio that’s looking to enhance or solve for issues in obstetrics - a field that has basically had no innovation since the discipline was created in the 1950s or whenever it was. What this device called “Oli” does is it detects post-partum hemmoraging nine hours before it happens. Currently, one woman dies every 7 minutes from post-partum hemmoraging.
So the company you’ve invested in is a diagnostics tool for this medical issue?
It can do a bunch of other things, but it’s starting with that because its the things that’s costing lives and so much money. The way it’s detecting now is Mum loses about a litre of blood and then she’s got about three minutes to bleed out. It’s insane when you think about how little has been done that’s basically keeping humanity alive, and the race of humans continuing, you need to have a womb for that.
The doctor who was the founder of this business experienced post-partum bleeding during her second birth. She knew there was something wrong, and she was a mechatronics engineer, and was she was like surely there’s a way we could be able detect this, because I could feel it in my body that something wasn't write. She went and got a PhD in medicine, and by her fourth child, was using the device. It’s called Oli because her second child is called Oli. She’s amazing. It’s a great example of what's possible.
Very cool. We here the broadly quoted statistic that only 2-4 per cent of venture capital goes to women-led businesses, and the latest Cut Through Venture report showed that its actually dropped to the lowest levels since 2019. To invert this slightly, where's the money actually going? Because it’s obviously being poured towards founders and ventures? So what is being paid attention to?
I think what happens in a market where - you could argue that last few years have been some of the toughest for venture in this country and globally. Venture is on the decline, there is a report that came out on June 30 that found that from an asset class perspective, that there was a $3.3 billion outflow from venture (reported in Money Management), and a negative growth of 11.5 per cent.
So, as an entire category, in my 15-year career of investing, I’ve not seen credit be a competitor for venture, but it absolutely is now because it’s not even risk-adjusted returns, it’s basically risk-free returns. You can get in the bond market now and you’re getting up to 20 per cent return in 18 months with a coupon of 8 per cent every month in a credit deal, or a mezzanine credit deal versus venture, which is you’re locking your money up for ten years. I think within that context, it’s hard for investors in this market to allocate capital to venture as a category. So as a pure asset allocation play.
That’s compounded by the fact that what most investors do in down markets or tough markets is they support their existing portfolio.
TG: I see.
We’re guilty of doing that too, every single investor across every asset class is guilty of that. It’s exactly what you should be doing as an investor, is you’re going to continue to back the investment that you previously made because you don’t want them to fail and you want to support them in these times when it’s tough. You can’t just be there for the good times, you’ve also got to be there for the bad times, and to naturally support their growth as well.
What tends to happen in down markets, or tough markets, is that their biases are increased. And their bias is to reinvest in the same businesses.
So naturally, a number that is 2-4 per cent is going to go backwards, because that number is already small, and so you’re going to reinvest in the companies that you want to support, so of course that number is going to go backwards, which is a real problem.
When you asked the question specifically about where is the money going - it’s going into AI. So AI businesses from a new investment point of view are being funded at a much higher rate then any other category, because we’re at this inflection point of this once in a generation opportunity where arguably the AI companies you invest in today will be the behemoths of the next decade. So they’re garnering far more attention from a new money perspective versus an existing perspective.
It's those two main things - when it’s under pressure people continue to invest in what they know and they continue to support their existing portfolios, which means new companies struggle to get capital, which means if there is an underrepresented group within that category, they’re naturally not going to get the capital. And we obviously see this as a massive opportunity.
What strategies have you seen work to actually change outcomes?
Firstly, transparency. What you don’t measure doesn’t change. If I’ve got no visibility of where my capital is going, or where you’re allocating capital, then it’s not going to change, or if I’m not being transparent about even the gender makeup of my team. Transparency and targets definitely helps.
I also think ally ship, and those in power stating that they are wanting to do something about it.
I think back into my career - a lot of sponsors who helped me get to where I wanted to go were men. Because they were the people in power, who held most of the senior roles. I think if you translate that to venture, it’s so important that the partners of these firms are actually talking about it, that they are mentoring, they are sponsoring, they are putting their money where their mouth is. I think people get scared of doing that, because they don’t feel they have the social licence to talk about something they haven’t had as a lived experience.
But I think a lot of people are like… what do we do? We just talk about it? And I’m like yep, that’s a pretty good start, because if you don’t tell me what your position is on something that matters to you, then I don’t know what your position is, because I can’t read your mind.
And I think investment decision making processes have to change. You have to change the way you do things. If you are speaking to a cohort of people that has not been socially conditioned, or does not speak like you, I think all those training things, have you done unconscious bias training, is someone presenting with an accent, can you understand them. Those types of things I think people just don’t even matter. I think the small things matter more than the big things. “We only had one woman apply” - what did your ad look like? Did you talk about parental leave? Did you talk about flexibility? Are there any women in your team? Are you making a statement that you want to see different kinds of people apply? Do you turn up to student societies, and talk about why diversity is important?
Have you heard of Future Impact?
No - tell me more?
The company is solely focused on getting more women to be the future fund managers of this country, and they’ve just released their second report.
They had a great case study where a fund manager implemented a diversity strategy in his business because he wanted to improve his performance. In four years, he’d gone from one employee to nabbing a really great fund manager from another fund who was a senior woman because he also recognised that it was multi-layered.
It’s great to have targets - but it’s also about when women come into the business, do they feel safe? Do they feel comfortable? Can they thrive in that environment. Get people to stop talking about footy every morning - not just women, other people from other cultures who don’t care about that. Just the inclusivity of your language and all that sort of stuff are the things that I’ve seen that work - and they translate. His performance has never been better.
It totally makes sense - even beyond venture, talking to friends who work in the corporate environment, they've observed subtle signals that people can get as non-Anglo Australians, this is really not inclusive. And they have so much to bring to the table.
So much.
So not only is the language not inclusive - it’s wrong in the first place, but in the second instance, not seeing these people for who they are and in their fullness …
You’re actually doing yourself a massive disservice by not creating an inclusive environment.
This guy in the case study said “I was so sick of the fighting, there were just all these men around the table fighting, they were just being super competitive, and I wanted to move from a competitive to a more collaborative environment, because I knew there were opportunities being left on the table, because they were fighting about the dumbest stuff, instead of going well how about if we look at this doc” etc.
Have you had to do any unconditioning or unlearning yourself in terms of ways you were showing up as an investor?
When I started in venture, there was a lot of unlearning I had to do. I’m still guilty of using references to ‘war’ and ‘sport’ and highly patriarchal and misogynist metaphors. Like, ‘dry powder’ for instance. What a ridiculous notion to talk about the fact that there is plenty of money around. And I’m guilty of doing that because you move from one industry to the next and there is jargon in all of those industries. We try to unpack that jargon, and to create a glossary of terms to try and remove the opaqueness, particularly in private markets. If you think about finance being really unattainable, and you go into venture, and it’s even more so.
Language is one of the biggest barriers and the biggest thing that you need to unlearn is using language that is not patriarchal, not warlike, and not referencing the powder used in an 18th Century gun to talk about money.
And calling to our Missing Perspectives' audience here - smart, multi-faceted women, but not necessarily in the financial services industry - what is venture capital?
It’s investing in small businesses, small to medium enterprises that maybe have a prototype in market, or a minimum viable product, but they have the potential to become a billion dollar company or a hundred million dollar company and the reason they can typically do that is they have some kind of tech or proprietary element to the business that can be scaled globally.
There are different types of venture capital businesses that invest in startups, there are ones that specialise in medtech, deeptech, climate tech, AI, any of the subcategories. And those businesses typically have people in them that are maybe ex doctors or climate specialists that can recognise and test to some degree whether or not this new invention, product or service can scale. And they then put a whole lot of things around you to support you once you’ve made that decision. There are so many different methodologies that you can use to assess these companies.
In generating some hope for people on the investor side, or the founder side, or on the "hey we’re totally outside of this world but we’d love to learn more" side, I think seeing the figures on face value is not super hopeful. Are their nuggets of hope that you’d like to share at this point?
When it comes to Scale's portfolio - for the 2019/20 vintage for us, we have venture-like returns in terms of money on invested capital of around 2.5 per cent, which is top quartile venture returns.
Those are the things that give us hope, because we know and we’re uniquely positioned in that we have an existing portfolio that are performing incredibly well from an unrealised point of view that have the potential to exit for we think billions of dollars.
And actually solving important problems - like giving people their voice back, or maybe women don’t have to die giving birth (Oli), you know, that would be amazing, that should never happen.
I also think there needs to be a massive emphasis on the economic and financial performance opportunity, and less on the bad numbers of 2-4 per cent. What we need to start putting out there is the tech opportunities. The companies in this country that have performed the best happen to be women-led - Canva, Airwallex, Mr Yum - they all have women in their teams, and they happen to be Asian women. We can show you a massive pipeline of these opportunities.
There are the example everywhere of this, and they need to be shared in mainstream media, and people need to hear that women and diverse teams are the biggest opportunity in venture in Australia.
Also something that gives me hope Equity Clear as a concept - we’ve got 65 firms on board doing something. Some of the biggest firms in this country recognise and take seriously this issue, because they recognise the opportunity having been shareholders in Canva going, imagine if we find another one of those - it’s probably going to have a woman on the team.
There's a ridiculous amount of opportunity in this space, and we at Scale think we’re well placed to take advantage of it.