Why Women Entrepreneurs Have a Harder Time Finding Funding
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Women entrepreneurs run 30 percent of all small businesses, and together employ 7.9 million people and generate $1.4 trillion in sales (as of 2015). Needless to say, these are pretty staggering numbers.
All that success is wonderful. However, there exists an underlying issue that is keeping women from being even more impactful -- difficulty finding funding.
Women-owned businesses receive just 7 percent of venture capital investment money, which is highly disproportionate to their role in the economy. Additionally, loan approval rates for female entrepreneurs is 15 to 20 percent less than it is for men. Clearly, something is not right.
Access to capital is crucial to any small business’s growth trajectory. By looking at the reasons for this disparity, solutions can be more easily seen. With so many capable, trustworthy businesswomen in this world, it’s vital for society as a whole to ensure they get equal chance to do great things. Here are the top reasons why women entrepreneurs have a harder time obtaining investments and loans.
It’s hard for any startup.
It’s worth noting that the startup game is a difficult one to get into, regardless of your gender. Venture capitalists, financial institutions and other lenders frequently deny all types of entrepreneurs. Consider this -- during the first half of 2014, out of all small businesses that applied for a loan, only half were approved for any amount whatsoever.
So, add in the general challenges small companies face to secure investment along with the unique hurdles women encounter, and you have a truly difficult task. Not only do women have to demonstrate a great business plan, have excellent credit, and demonstrate solid cash flow, they must also successfully navigate through a process that tends to unfairly favor male-run startups.
There is an issue with the profile of a successful entrepreneur.
Candida Brush, a professor of entrepreneurship at Babson College, has an insightful take on one of the main reasons why women don’t get funding -- the profile of the successful entrepreneurship is male. If you think about it, this is frustratingly true. When picturing the great business people of today, for many, images of Mark Zuckerberg and Steve Jobs come to mind.
Hence, when investors are approached by women entrepreneurs, there is an unconscious bias that they will not be as reliable an investment as their male counterparts, and therefore not as fundable. To solve this issue, Brush states, “it may be time for the media, educators and funders to recognize that successful entrepreneurs are not all like Jeff Bezos or Bill Gates.”
The way to break this unfair stereotype of the successful entrepreneur is to better highlight the great businesswomen of today -- Cher Wang, co-founder of HTC; Arianna Huffington, co-founder of Huffington Post; and Beth Comstock, one of the founders of Hulu and current vice chair of GE. This will help instill in the mainstream mind that the face of success comes in the female form, too.
Venture capitalists support their own.
There is a tendency for venture capitalists to invest in startups run by people who they share a direct or indirect connection. The problem with this is that the business and political world is still overwhelmingly male. For each woman, there are four men named James, William, Robert or John running an S&P 500 company.
In the venture capital world, where 89 percent of investors are male, women entrepreneurs are getting overlooked for funding in favor of giving the money to men with whom they share a connection (think same college fraternity, hometown, friend’s brother, etc.). As Bonnie Crater, the president and CEO of Full Circle Insights, notes, venture capitalists offer funding to those in their “tribe.” The “Good Old Boys” system prevails.
With that said, hope and opportunity remains. Eleven percent of venture capitalists are women, and firms with female partners often invest in female-run startups at a higher rate. The key for women to succeed is in networking and finding investors and lenders that focus on financing women-run businesses.
There are investors with unintentional -- or intentional -- biase.
The story of Kathryn Minshew, the co-founder of The Muse, is an alarming example of the uncalled-for difficulties women have to put up with when looking for funding. While trying to raise capital for the Muse, Minshew repeatedly encountered closed doors, as numerous VC firms claimed they weren’t in the market to hear her pitch. When she pushed further, she received hateful responses -- tones mirroring the likes of saying, “Don’t get too big for your britches.” Even when her pitch was heard, she felt most mistook her leadership and confidence as charm, rather than signs she could effectively grow a business. Eventually, Minshew did obtain funding, only after contacting more than 200 capital firms.
For minority women entrepreneurs, the issues are further exacerbated. Black women own 1.5 million businesses in America that generate about $44 billion per year. However, black females only obtain 0.2 percent of venture capital investment dollars. There are countless personal experiences that show just how bad it can get for many minority female entrepreneurs. Kathryn Finney, a black female entrepreneur who started the highly successful blog Budget Fashionista, said, “I actually had a [venture capitalist] tell me that he didn’t do the black woman thing.” Finney, like many others, has run into the discrimination underlying venture capital funding. The truth is minority women represent the fastest-growing group of entrepreneurs in the country.
With both unintentional discrimination and intentional discrimination limiting the access women entrepreneurs have to funding, it’s evident a greater push needs to be made to break down these barriers. Investors, lenders and other financial firms need greater education on the potential of women to improve the business world. The numbers don’t lie. It’s clear investors need greater awareness on how discrimination only gets in the way of opportunity and progress for others as well as themselves.
Despite all this, the future is bright.
In spite of all the obstacles women entrepreneurs face, there has never been a better time in U.S. history to be a woman entrepreneur. The number of women-owned firms has grown 68 percent since 2007, much higher than the national average of 47 percent. Statistics like this continue to indicate progress and greener paths ahead for female business owners. But more work is to be done.
While difficulties women have in obtaining business funding won’t be fixed overnight, there remains plenty of ways to overcome these setbacks. It starts with being fearless and resilient, and fully exploring all the potential options. The Small Business Administration has specific loan programs for women-owned businesses. There are angel investment firms and grant institutions that specifically lend to females. Additionally, with the rise of Fintech startups, there are lots of new funding sources, such as peer-to-peer lending sites. Networking with other women entrepreneurs is another avenue you have for getting funding, and the National Association of Women Business Owners is a great place to start.
If you are resourceful enough and grab control of the process, you can get the funding you need and get back to building your dreams.