Shuyin Tang, Beacon Fund/Patamar Capital
“In order to achieve a responsible exit, it’s important to start early - before even the investment takes place. This might sound a bit counter-intuitive, but articulating a clear investment thesis - including gender as a value driver - and getting the cap-table right are critical to success.” Shuyin Tang, Partner
Snapshot
Firm: Beacon Fund
Fund Name: Investing in Women
Type: Debt/Mezzanine
Funding Structure: TBC
Investment Thesis: TBC
Fund Size: TBC
Geographic Focus: Southeast Asia
Target Investees: TBC
Overview of Exit
This company in Indonesia was one of the largest B2C fresh produce distributors in the country, delivering to consumers less than 24 hours after harvest. We were the first institutional investor in this company and recently completed an exit via secondary sale.
How did you ensure that gender is one of the key value drivers of the company?
This was very clear to us in our own due diligence and investment analysis on the company. More than 90% of its customers are women, in particular women who have challenges sourcing fresh produce for themselves and for their families in a convenient way. More than 80% of the company staff are female, with co-founders and the management team being majority female and demonstrating a strong pattern of women’s leadership.
This strong presence of women at every level of this company and also amongst its customers was not coincidental - actually, thanks to their own experiences, this predominantly female management team had a sharp understanding of customer needs and trends in the space. It was the secret sauce which allowed them to succeed, and to achieve early traction and scale.
We were explicit and upfront about these factors in our investment thesis and due diligence, and in the way we presented the competitive edge of this company to our investment committee.
How did you stand behind the female founders and leadership team?
One of the things that we saw a lot not only with this company but also in our investment work more broadly across Southeast Asia is the equity gap. Female co-founders tend to have less equity than male co-founders. Research has shown that women typically only have 39 cents of equity for every one dollar that men would own. Less equity means less payout in exits - and given that exit proceeds are often a big source for women to become angel investors or even to start their own funds, this has a larger impact on the ecosystem which is important to address.
In this deal, we actually played a key role in restructuring the cap table to be more equitable to the female co-founders. We were the first institutional investor - and when we saw that the two active co-founders who were women actually had relatively small amounts of shares compared to the part-time male co-founder, we determined that it did not make sense in terms of gender equity nor in terms of rewarding those doing the heavy-lifting of running the business full-time. So we made it a precondition to our investment that the cap table would be restructured. To their credit, the team did execute the restructuring.
How did you challenge gender biases in valuations of the female economy?
In this deal, we also tried to be thoughtful about how much dilution the co-founders would be taking overall as part of this early round. We asked that the company raise more capital than they had planned, to give them additional runway. On our part, we were more flexible with the valuation so that the founders actually ended up with the same dilution as if they had raised a smaller round. This was a leap of faith for us, and ties to Principle 3 - valuation of companies which focus on the female economy.
We were aware of the biases that came into play when valuing female founders whose businesses predominantly targeted female customers. When being more generous with the valuation in our round, we did have to take a bet that the company would be able to command a higher valuation in subsequent rounds. Ultimately, we’re pleased to say that it was possible but we really had to work for it. We supported the founders with the messaging during the fundraise - how to showcase traction of the company and the strengths of the team which some VCs may have seen as not the typical or traditional path.
How did you ensure buyer’s alignment at the time of exit?
Further along our investment journey with the company, we held several discussions with potential investors. We emphasized the “secret sauce” which we believed allowed this company to achieve both their early traction and rapid scale-up - the predominantly female team that had a sharp understanding of customer needs and sector trends. As we brought on more investors to the cap table and worked towards an exit, we made sure that the story of “gender as a value driver” was being showcased in this business.
What is a key learning you have from this exit process?
In order to achieve a responsible exit, it’s important to start early - before even the investment takes place. This might sound a bit counter-intuitive, but articulating a clear investment thesis - including gender as a value driver - and getting the cap-table right are critical to success.
Despite our efforts in building out a responsible exit, it was frustrating to see that there were other companies in the same sector with all-male management teams and founders, who were able to raise at higher valuations and with larger amounts of capital. This shows that we have a lot of work to do as an ecosystem to challenge some of these biases.
What is your call to action for LPs and GPs with regards to Responsible Exits in Gender Lens Investing?
Start thinking about a responsible exit from the stage of due diligence.