Catherine Graham spent almost a decade running two businesses side-by-side. But as she grew these enterprises, Ms. Graham was keenly aware of what she wasn’t building: her personal investment portfolio.
“Everything else was on hold as we built these two companies at the same time,” says Ms. Graham who, together with her husband, co-founded Rightsleeve, a Toronto-based promotional products company, and Commonsku Inc., a software business spun off from a platform they developed in-house to address Rightsleeve’s product and customer relationship management needs. “We were mortgaged to the hilt; we had borrowed money from family, and we were raising three kids at the same time. There was no money to go towards anything else outside of growing those businesses.”
This meant many years of being unable to save for retirement, adds Ms. Graham, who sold Rightsleeve in 2019 and continues to be chief executive officer of Commonsku. The latter has since evolved into a sales and marketing software provider serving about 1,000 distributors and suppliers in the promotional products industry.
“The compounding that you lose out over those years of not contributing anything to those investments – you can’t ever make up for that time,” says Ms. Graham.
Many entrepreneurs face the challenge of trying to save and invest while growing a business. But the problem appears to be more common and acute among women business owners who, as studies show, often can’t get funding and tend to pay themselves lower-than-market incomes.
According to a report by Leading Retirement Solutions, a retirement plan administration consulting firm in Seattle, only 43 per cent of women business owners contribute regularly to a retirement plan, compared to 50 per cent of male entrepreneurs. The report also cited an increase in the percentage of female entrepreneurs who said they weren’t saving for retirement at all: 14 per cent versus four per cent from the previous year.
Yet women business owners are also more likely to rely on savings and investments to fund their retirement. A report released last February noted that RRSP assets play a more important role in the retirement plans of female entrepreneurs than they do for male entrepreneurs. This can be attributed in part to women’s higher propensity, compared to men, to contribute to an RRSP. Female entrepreneurs also tend to own service-related companies and can’t always count on business equity to fund their retirement, the report stated.
These challenges have shaped the way some female entrepreneurs choose to invest. Laurel Steinfield, an assistant professor of entrepreneurship at Western University’s Ivey Business School in London, Ont., observes that women business owners who later become venture capitalists tend to be “very precise with how they invest in money” and apply a deeper level of due diligence to their investment decisions.
“I think it’s because they are trying to make really, really good decisions to try and catch up,” says Ms. Steinfield.
Female VCs with histories as business owners also often seek out women-led businesses as investment targets. While they’re on the lookout for high-growth unicorns, some are also willing to bring in lower-growth, women-owned ventures into their portfolio if they see a viable business model.
“They understand the realities that women [entrepreneurs] face in trying to get financing and they’re willing to [accept] lower growth because they know that they can create a funding option that will really help to achieve the social justice initiatives that they’re after,” explains Ms. Steinfield. “The world of capitalism runs on profit but if you get a group of investors who understand there’s more to it than just profit and, at the end of the day, you’re getting enough back that you can put your kids through college, then that’s okay, right?”
Shelley Kuipers, CEO and founder of The51 Ventures Inc., a women-backed venture fund that provides capital to entrepreneurs who are women or who identify as women, says there’s a strong case to be made for women entrepreneurs investing in women-led businesses.
“When a woman is on the investing team, women entrepreneurs are more likely to be funded than if there are no women on that investment team,” she says. “And while they’re under-invested in, women as an asset class are overperforming, so we’re looking at it as a very opportunistic financial opportunity.”
Ms. Kuiper notes that when women entrepreneurs invest in other women entrepreneurs, they often bring in more than financial capital.
“They also bring in human capital – their experience as entrepreneurs and their willingness to mentor and share their knowledge,” she says. “We have successful operators in our community with a tremendous amount of experience and expertise that can be tapped side-by-side with that financial capital.”
Investing in a woman-led business has turned to be a good decision for Sarah Prevette, founder and CEO of Future Design School, a Toronto-based education advisory firm that works in more than 65 countries. Among the angel investments she’s made over the years, one of the most successful is one owned by a woman: Ruggable LLC, a company in Gardena, Calif., that sells machine-washable rugs.
“The data actually shows that women-led businesses tend to drive greater revenue and profitability,” says Ms. Prevette.
But even when their businesses are succeeding, women entrepreneurs often fail to pay themselves adequately – an oversight that can affect their ability to grow their personal investments. Ms. Prevette says it’s a good idea for female entrepreneurs to talk to their peers about compensation to ensure they’re drawing an income that aligns with CEO pay among similarly sized companies in their industry.
While entrepreneurs typically have most of their money invested in their own company, diversifying with other assets is also advisable, adds Ms. Prevette. In addition to investing in startups and venture capital funds, she and her husband, who also has his own business, have put their money into real estate.
“That’s proven to be a really great investment for us – the properties are growing in value, and we have rental properties that generate a steady stream of income,” explains Ms. Prevette.
Still, she adds, the best investment has been her own business. It’s a sentiment shared by Ms. Graham, who says the sale of Rightsleeve allowed her and her husband to pay off debts and direct some funds into their investment portfolios. She’s done some angel and limited partner investing. When it comes to capital markets, she prefers to invest in exchange-traded funds.
“I think the key decision point for me was that it’s not a good use of my time to be thinking about what stocks I’m going to buy,” says Ms. Graham, who worked in banking – including financial planning and mortgage lending to high-net-worth clients – in the early years of her career. “My time is better spent continuing to grow the business.”