Interview with Virginia Tan of Teja Ventures on Fintech, VCs, and Catalyzing Investment in the Female Economy

Thursday 27th August 2020

Virginia Tan is the founding partner of Teja Ventures, the first gender lens VC fund in emerging Asia focused on early stage tech companies for the She Economy, particularly in health and wellness, digital distribution, and financial inclusion. She is also the founder of She Loves Tech, the world’s largest competition for women-led or women-focused tech startups, and the co-founder and president of Lean In China, a nonprofit with more than 100,000 members across China. The Alliance spoke to Virginia about her experience with gender lens investing, the opportunities in supporting women, and what it will take to make emerging industries more gender intelligent

Alliance: Can you explain why you started Teja Ventures and what a gender-lens venture capital investment fund means?

VT: I worked in development, and then I worked as a finance lawyer. While working as a lawyer in China I started building communities for women and we ended up building one of China’s most successful nonprofits for Women—Lean In China. We worked with 150 universities across China on young womens’ leadership development and with many of China’s leading companies to publish data on women in the workplace; we were one of the few organizations doing it, which was quite absurd for a country of 400 million working women. In 2015, I founded She Loves Tech, the world’s largest competition for women and technology start-ups. A lot of well-known funds, like Sequoia Capital and Vertex Ventures, were putting in money into the winning startups. So I realized there was an untapped opportunity. Teja Ventures focuses on investing in technology companies for the She Economy in emerging Asia. Our gender lens is broad and we invest in both male and female founders. I look at women both as drivers and beneficiaries of new business models in the internet economy. 

Women are first adopters of a lot of new consumption patterns. The data shows that women are first adopters in the health and wellness space–and they buy on behalf of themselves and their households. If you look at telemedicine, more women than men are searching online for health information. If you look at future of eCommerce, new retail models—social commerce, content driven commerce, influencer driven commerce etc.—have allowed women as sellers, content creators, influencers to drive revenue and benefit. You can become a micro entrepreneur online by selling on platforms like Meesho; 90% of its sellers are women in India, and mainly housewives. 

Teja Ventures invests in startups that recognize and leverage women as market makers. For example, we invested in Sheroes, a content driven community of 20 million women users; one of their main revenue lines is to onboard women as remote workers. We invested in Frontier Markets, which is a last mile commerce and distribution platform that leverages a network of digitally enabled rural women as agents to sell goods and services to rural consumers. And we have also invested in Duithape, a fintech company that uses facial recognition software to facilitate cashless aid distribution in Indonesia—that has been utilized heavily during COVID.

Alliance: Why do you think female consumers are underserved? And why do women represent a massive arbitrage opportunity in the market?

VT: There’s a lot of data that says that women consumers are underserved across sectors. Why is that? In a lot of industries, most of the norms have been historically male centered. In Pharma, for example, a lot of the drugs were mainly tested on male bodies; women weren’t adequately represented in drug research for decades and it’s unclear how the drugs might affect women’s bodies differently.  It’s the same idea in financial services. Women are more likely to borrow small amounts, have less access to collateral, and have less credit data. In traditional models, the fixed cost structure incentivizes lenders to serve clients with the largest loan sizes. So, lenders aren’t as willing to service smaller or unsecured loans for women. There is systemic bias in the way credit risk assessment systems have been established.  The digital revolution represents something interesting—data shows that women are more active online, as it’s a major way they interact with products, brands, and each other, and so they have more social data. You could build underwriting around that.

I look at the figures. Women control 80% of consumption dollars but get 2-3% of VC funding. So, a lot of things are designed for the end consumer but without a real understanding of womens’ needs – even when they are making the bulk of household consumption decisions. Women pay back micro-loans at 95% rate vs. 75% for men. Women-founded businesses raise 50% less committed capital but bring in more revenue. So, they perform better and give back more. Why do we not create more products suited to their needs? If we serve them better, does this not create a strategic advantage for the company in question? It’s an arbitrage opportunity.

But look at the number of new unicorns that are driven by women as consumers; new fertility companies, lifestyle companies like Classpass, content-driven companies like Red in China. These are tapping into the women’s market.

Alliance: We recently conducted our own research on the fintech industry and found very little focus on the women’s market from either founders or funders. Why do you think that is?

VT: Finance is dominated by men, at all ends of the spectrum. People invest in the things they associate with and understand. I believe it has not occurred to many decision makers that the women’s market is a huge untapped market, and it means deeply understanding the end consumer, and changing the way things are done and who designs the products. In the wealth space, the biggest handover of generational wealth in history is going to millennials and women. All of the big banks know that…but doing something about it means changing mindsets, products, and the teams driving these products, and it needs to be driven from the top. I know how long it took for a large private bank to embrace an approach for the women’s market and launch a new gender lens product, even with huge demand from its clients. Change requires buy-in from leaders.  I believe they will do that if they have the right data, and the right teams.

Another issue is that funders still like to look at the biggest fish. If you are an investor looking to fund a lending startup, you are likely to be attracted to the start-up with the greatest traction, i.e. the biggest loan book. So, the question is how you frame and price risk and return.  I talked to a very successful founder of a digital lending platform in India, who said their portfolio was 75% male and 25% female borrowers. I asked him—don’t you think that’s risky? Because women have been shown to be more creditworthy. He had never considered that point – he was simply focused on reaching 5x the loan book in a year.  At inflection points in the market, having a loan portfolio with high quality credit is as important, if not more, than building a large portfolio as fast as possible.

Alliance: Women founders have only received 2-3% of global venture capital invested. In your opinion, is it because there is an inherent bias against ventures with female founders? What can you say to your peers to drive them to invest more in women founders?

VT: I believe there is funding bias against women founders, but it’s not blanket discrimination based on just the appearance of a person’s gender. There is a mismatch between female founders and the expectations of investors in general. The data shows us that female founders are more revenue driven and focus on sustainability and profitability instead of rapid growth.  Contrast this with the mandate of a VC fund, which is to chase a certain multiple of returns and often explosive growth driven by successive rounds of larger and larger capital raises.  In my experience, female founders often also care about creating social impact when building businesses.  However, in general, conventional investors see social and financial as very separate; whereas for a lot of female founders, social impact is integral to the business. I have seen women founders being penalized by investors for that. If there is a bias, it is that women are seen to be less able to raise capital, and in reality, are raising less money. VCs, in looking to make their returns, are often looking at how much founders can raise in the next round, and if they believe that it will be harder for a founder to raise capital, this represents greater risk, and they are less inclined to back it. I understand this dilemma.

To my peers, I would say: Focus on the entrepreneur and not the gender. A woman-founded business comes with strengths and opportunities—just like any other investment.  Look at the fundamental drivers of the business – revenue, scalability, and cost of that, and if the founder is best suited to build that business. I believe any good investor has the ability to look beyond gender and focus on the opportunity at hand. At least from what I’ve observed in China, the She Economy is seen as a lucrative opportunity.

Alliance: Given your understanding of the investment scene, what do you think will drive investors to consider investing in fintechs that impact the female economy? A push from regulators? Awareness campaigns? Research highlighting the business case for targeting women? 

VT: Three things. I think the research is key. There’s a lot of good data that shows high revenue and lower failure rates from female-led companies. But when I go to investors, they are not interested in the diversity data. All they want to know is: why will investing in this opportunity make me money? In my opinion, the data on diversity is less of a priority in Asia; but if people see how this will raise their LTV, retention rates, and revenue…that works. Second, we need to get more male CEOs and leaders in financial institutions to champion the case within their own institution and industry. Third, we need to change the way we talk about the female economy. If an investment is just for women, a lot of investors see that as a limitation. But if you are saying that this is a fintech that targets women as a conduit to an entire market—you may want to sell loans first, then savings, then insurance—not just for the woman, but to her household and then her community, that’s more appealing. I say this because Teja is investing in a lot of digital distribution channels dominated by women consumers. You start off with a key product. Trust is the currency. If women buy one product and like it, they may buy more.

We need to make investors aware that women represent multiple markets in one. Women control 80% of global discretionary spending. I know that in East Asia, women hold the purse strings at home across all income segments.

Alliance: Can regulators play a role?

VT: I think they can play a role in places where things are really unequal; where there is really a big gap in access. They can also make the environment better for fintechs in general to help them start and scale.

Alliance: Most fintechs turn to their investors for guidance and support, especially in their development phase. Unfortunately, with fintechs wanting to add as many users as possible to accelerate funding and investors looking at scale and profitability as the most important KPIs, we are facing gender spiral where fintechs are catering more to male users and less to women. How do you think investors can influence fintechs to focus on the women’s market? 

VT: When I set up Teja, I couldn’t understand why investors were not looking at this. Investors need to look at loan portfolio quality rather than just scale. My background is in finance and restructuring, and I spent my early career restructuring banks and corporates, so having a creditworthy portfolio and cost-efficient scalability is important. Technology also has a big role to play here. If fintechs can bring down the cost of lending and enable lenders to make smaller, unsecured loans more cheaply in a quicker and more accessible way, then banks will be able to serve more women. We have seen this with the rise of fintech giants like Ant Financial. 

Alliance: In assessing the projects that Teja Ventures will invest in, which criteria do you consider as elemental? Profitability? TAM? LTV? CAC? Do you ask for the estimates to be disaggregated by gender? 

VT: We focus on early stage companies, and so the first criteria is talent—the founder, their vision, and the team’s capabilities – are they the best placed to build this product? Second, how big is the market opportunity? Third, we look at the strategic value proposition of the product—growth drivers, scalability and cost efficiency – what differentiates you from others?   We have certain gender lens criteria when we evaluate startups at the sourcing, due diligence and post-investment stages.

Alliance: Can you get the data by gender?

VT: Yes, we are a gender lens fund, so while each company is different, we always request gender specific data on metrics we deem important.

Alliance: Why don’t more VCs ask for this?

VT: Perhaps they think it’s not relevant to evaluate risk and return. I’m not here to judge. I think as a VC, it is always important to understand the end consumer of the business you are investing in. We want to understand who and what are the real drivers of revenue and growth.  Only when this is understood, can you really evaluate it. This is a strategic advantage of the company—understanding their end customer’s preferences, habits, behaviors. If they can capitalize on and leverage that behavior better than others, they will get higher LTV and retention and a lower CAC.

Alliance: Why don’t they all look at LTV?

VT: This goes back to understanding consumer behavior. A lot of times people look at TAM and it is not disaggregated by gender. But a good investor can evaluate who’s driving that channel of sales. LTV may not be that easy to determine early on. You can see retention 3–6 months  out but you can’t be sure how the basket size will grow. The assumption that men are first adopters on the internet…it’s true in some countries, in others not.  They may be first adopters in gaming and the purchase of electronics but not in many other categories. If you look at the new models of ecommerce—personalisation, group buying, social media, video recommendations etc. —a lot of it is driven by how women behave online.

Alliance: How can you measure the real impact that the project will have on the female economy?

VT: I think it depends on the startup. For Sheroes, India’s largest social network for women, we look at the jobs created, users accessing it and amount of engagement. For Frontier Markets, a last mile commerce and rural distribution model with women as agents, we look at average income made by women agents and the types of consumer options provided to rural populations. For Wonder Tech, a digital mental health solution for pregnant women, we look at number of users and engagement with its content. We try to consider the impact of the technology not only on the consumer, but on the full the investment value chain – on women as online traffic, mobile workforce, supply chain, etc.

Alliance: Within your investment portfolio, have you seen any algorithm and machine learning bias? How do you think we can drive the industry to be more aware of this potential problem?

VT: So far, I haven’t. Teja’s focus is on the She Economy – the womens’ market. A key challenge is how to drive algorithms and machine learning to take into account female behavioral norms. But if you have platforms with a predominantly female user base, the products you create will largely be based on women consumers’ data and build a bias towards women. In this case, that’s a good thing for the women’s market.

Alliance: What role do investors have to play to ensure the fintech sector/ecosystem becomes more gender intelligent?

VT: These conversations that we’re having–they should not just happen between you and me. For me, it’s about having these exact conversations with CEOs and top investors.  We also need to make sure the allocators of capital take these conversations seriously, and they won’t do that until they are assured this is an economic opportunity that they could make a lot of money out of. That is why the data is important. One reason I set up Teja Ventures was to prove the investment case for the She Economy. So, I think it will be important to engage any top CEOs and conventional investors from the finance and VC sectors, and to not limit conversations to women. We need constructive dialogue and input from the world of capital if we want to direct more capital to women’s markets – we need to know what they see as gaps and risks, and how we can address this. 

Capital understands capital. The market opportunity for the women’s market is big enough – so how do we show that the returns are high, while the risks are, in theory, lower?  The key is to overcome lack of knowledge and interest and speak about the elephant in the room – which is the perception of the women’s market as limited in comparison to mainstream markets, or of women as just beneficiaries and not economic drivers.