The business landscape in the United States is largely characterized by entrepreneurship, with hundreds of thousands of startups established each year. Despite the high number of startups, however, only a small percentage are owned and operated by women – and an even smaller percentage of female-run businesses receive the necessary funding to reach their full potential.
Historically, women have faced significant barriers when securing financing, whether from traditional lenders, angel investors or venture capitalists. Even though the playing field has begun to level with more focus on diversity in startup environments and technological advancements making it easier for women business owners, studies show that they still face significantly higher levels of difficulty when it comes to accessing funding compared to men.
In fact, research shows that only around 2-3% of all venture capital is invested into female-owned businesses each year. In addition to this, data from the SBA suggests that women only receive 16% of conventional small business loans, which is significantly less than male business owners, who receive at least double the amount. This trend isn’t limited to large institutional investors on Wall Street either; Female-owned businesses are consistently underfunded, receiving only 5% of equity investment in the UK and only $0.4 for every $1 of small business loans issued over the past decade.
The reasons for this are complex, and rooted in various cultural, social and economic factors. One contributing factor may be that women entrepreneurs are disproportionately concentrated in industries and fields typically considered “female” or “pink-collar,” such as cleaning, retail, hospitality, cooking and care. These businesses might be viewed as lower-risk or have lower valuations. Because these industries are seen as less valuable, it could lead to lower incentives from investors to finance such businesses.
Another contributing factor could be the existing network of angel investors and venture capitalists, which is built on historical exclusion. Most investors fund people they know or have personal affiliations with. Women entrepreneurs, who are often part of smaller social and professional circles compared to men due to cognitive or societal biases, may not have the same access to these networks or as many ‘warm introductions’ compared to male counterparts, thus missing out on valuable potential investment opportunities.
Meanwhile, unconscious bias is also a significant factor at play when it comes to funding women-owned businesses. Investors typically have stereotypes and expectations about what a “successful” entrepreneur looks like, leading to more discrimination against underrepresented groups.
The only way to change is to change. More and more women are bootstrapping their businesses and making a success of them over the long term. From my experience and speaking with equity advisers in my financial network, there is a definite need and gap in the market for women to invest in others and to be invested in. The Women’s Business Club is one organisation changing how investors view women by running various development programs and creating opportunities for women to connect with investors and pitch their ideas.