🦄 vol. 12
karl and claude chat about gender inequality in vc funding and (planned) product obsolescence
equity, please? ☯️
Setting the scene 🎬
In the US, women entrepreneurs are a significant force. They are either the majority or equal owners of 45% of all privately owned businesses and yet they struggle to get funding. Looking at the $130 billion invested in 2018 by Venture Capitalists (VC), less than 3% went to companies with a female CEO, according to a report by Babson college in 2020. (It gets worse... 😩 ) Diving deeper, less than 0.2% of all VC funding goes to women of colour.
This is despite research from McKinsey in 2015 showing that in a scenario where women play an identical role in labor markets to men, as much as $28 trillion, or 26%, could be added to global annual GDP by 2025 🤯 . Not to mention an updated Mckinsey report in 2019 expressing that gender parity could boost African economies by the equivalent of 10% of their collective GDP by 2025. It's clear, we need women and women equity.
What about at home? 🤔
The above infographic, provided by Africa: The Big Deal, showcases how in all of the $2.7 billion in funding raised by African start-ups thus far in 2021, only 16.7% has gone to teams with either a single female founder, multiple female founders or mixed multiple female and male founders. While low, the number only gets worse upon closer inspection:
If we exclude men entirely, only 0.7% of funding has gone to female-only founded startups. 🤕
If we compare this to the number of startup deals, only 32 (6.4%) of the 496 deals considered were signed by female-only founded startups.
Combining this with the lower amount of funding raised suggests that the deals signed by female-only or gender-diverse founding teams are, on average, smaller than those of their male-only counterparts.
Has it always been this way? 🔎
Female founders raised 4% of the total amount raised by African startups. This was 8% of the deals made during the year.
Female founders raised 2% of the total amount raised by African startups. This was, once again, 8% of deals made in the year.
To make matters worse, startups raised 24% more in 2020 but the amount raised by female founders dropped by 30%. 😔
What causes this? 🤨
Homophily - birds of a feather, flock together. Essentially, people tend to like people who look, act, or remind them of themselves. So when nearly 70% of VC/PE investment teams are all male and 89% of the senior investment professionals in emerging markets (90% in developed markets) are male, chances are they will invest into other males that look and act like them (IFC).
This problem is further accentuated when we consider that the most common deal sourcing method is through personal networks. Networks that, once again, likely look like the majority of the VC professionals.
To further support this theory, on the opposing end, research has shown that when a woman is on the investment team of a VC company, that company is 40% more likely to invest in a company with a woman on the executive team.
Will things change? 👀
Fortunately, the situation looks to be improving:
In Private emerging markets we have movements like the 2X Challenge. Global commitments from the G7’s development finance institutions (DFIs) to collectively mobilise and invest towards women’s empowerment. From 2018 - 2020 $11.4 billion was raised. Now a new $15 billion target has been set for 2022.
In Private developed markets we have initiatives like Wharton's Project Sage 3.0 promoting and assessing gender lens investing in the US. In 2020 there were 138 funds deploying capital with a gender lens (with at least $4.8 billion raised), up 138% from the 58 funds in 2017. Almost 50% of these funds launched in 2019 and the rate of launch is increasing.
In Public developed markets we have gender lens equity funds (GLEFs) totalling $3.47 billion (8% Q-o-Q growth) as well as Gender lens fixed income funds with $7.71 billion under management (20% Q-o-Q growth).
planned obsolescence 📱
In general, the lifespan of products is getting shorter. Broken chargers, your laptop getting slower every year... It seems like we're in an endless cycle of purchasing and replacing.
How come? 🤔
One possible explanation is planned obsolescence, a business strategy in which the obsolescence (the process of becoming obsolete) of a product is built into it from its conception, by the manufacturer. The end goal of this is to sell another product or an upgrade.
The concern 😟
Products with shorter lifespans have a negative impact on the consumers of the product who fork out significant amounts of their money for products with marginal increased utility.
The environment is degraded as a result of all the energy and wasteful byproducts from the production.
Shining a light on the issue 💡
The purpose of this syndication? To reduce the average life expectancy of incandescent light bulbs to 1000 hours (previously it was at 2500). In the subsequent years, light bulb life expectancy dropped again to around 1200 hours, and sure enough sales went up in the following years.
A more modern example 🤓
Apple recently faced several lawsuits as a result of the "Battery-gate" scandal, where an Apple software update slowed down the functionality of older iPhone models, making users believe they needed to upgrade their phones.
Modern planned obsolescence also incorporates a conditioned psychology - consumerism, our thirst for new things, paired with money as the predominant measure of value in society leaves us open to psychological obsolescence. We have to have the latest and greatest, even if the product is only marginally better. Just look at the difference in specs between any two successive iPhone generations.
Despite being very similar to its predecessor on paper, several of the iPhone 13 models sold out almost immediately. With the psychological pressure to buy and built-in product expiry dates, it sounds a lot like we are subscribed to products.
Is it all bad? 🤔
Like with many things, it depends. While the idea of evil corporations is appealing, there are types of obsolescence that favour customers. When thinking about "good obsolescence" two concepts are at the forefront; Value Engineering and Functional Obsolescence.
Value Engineering is the idea of improving the value of goods by examining their function. The central principle is that if a product is expected to become practically or stylistically obsolete within a specific length of time, design it to only last for that specific lifetime. For example, Russian liquid-fuel rocket motors are intentionally designed allowing for ugly (though leak-free) welding to reduce costs in grinding down the excess metal that doesn’t improve motor functionality.
Functional obsolescence is the reduction of an object's usefulness or desirability because of an outdated design feature that cannot be easily changed or updated. For example, on-demand streaming such as Netflix and Spotify has rendered older media distribution channels such as cassettes and DVDs functionally obsolete.
So where do we stand? 🤨
Does it make sense for your phone to last 30 years? No, and for several reasons:
Investing engineering resources into making a phone last that long would drive the product costs up significantly. It would require using more durable (and expensive) materials, it takes time to get to that point.
Your phone would be functionally obsolete long before reaching its 30 year shelf life. Think back to your parent's Nokia 3310; snake? Yes, indestructible? Yes, but incapable of leveraging many of the technological advancements such as mobile internet and all the useful applications built on top of that infrastructure.
At the same time, consumers should not be forced to purchase iterations on iterations of products with only marginal improvements.
Where to from here? 🔭
A change in behaviour towards a more minimalist lifestyle would certainly help protect us against the effect of psychological obsolescence but there are still promising and less extreme avenues being pursued.
The "right to repair" is a movement which tries to render electronic devices easy and cheap to repair with the goal of prolonging their lifespan, favouring repair over replacement. It has been gaining traction and if passed, will legally require manufacturers to make spare parts available to people buying electrical appliances.
The only obsolescence we as consumers should be forced to accept is functional. Purchasing a new product should be a choice.
if you found matt’s space travel piece cool, he thinks you’ll love the netflix documentary on inspiration4
claude enjoyed this episode of the lex friedman podcast interviewing vitalik buterin, creator of ethereum
sash recommends that you register for google for africa this week