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We Need to Level the Playing Field for Female Entrepreneurs

bunsundesigns July 4, 2015

Women receive just 2 percent of total funding from outside equity, compared to 18 percent for men.

If women were as economically engaged as men in the economy, the nation’s GDP would be 7 to 9 percent higher.

Women have been a bright spot in the economic recovery. Whether it is the rise in social entrepreneurship, Millennials steeped in a DIY culture, or a more pragmatic necessity to reinvent oneself for the new economy, women are starting up companies like never before – at one and a half times the national average. And they are leading their male peers in job creation among private firms. Minority women, in particular, are driving this entrepreneurial growth.

Yet for all their success, women still struggle to get the capital that they need to fully pursue their dreams.

Just $1 out of every $23 in small-business bank loans goes to women-owned businesses, even though they represent 30 percent of all small firms.1 And women-owned businesses are denied at twice the rate of their male peers.2 Many women and minorities don’t even apply for loans for fear of being rejected. (It could be worse: as recently as 1988, when the Women’s Business Ownership Act was passed, some states required women to have a male co-sign before they could get a business loan!)

Loans are just one part of the picture. For promising startups that don’t yet have the revenues to pay back a loan, equity is a critical form of capital, whether it comes from friends and family, angel investors, or venture capitalists (VC). But here, too, women lag. Women receive just 2 percent of total funding from outside equity, compared to 18 percent for men,3 and only 2.7 percent of companies that received VC funding between 2011 and 2013 had a female CEO. In fact, women are 50 percent less likely to seek outside funding. And venture capital is often a clubby male bastion that is hard for female entrepreneurs to breach.

Often, factors such as lower revenues, credit score, geographic location, and industry sector can conspire to put capital out of the reach of women entrepreneurs. Sometimes it’s their own lack of confidence. In other cases, there may be subtle discrimination at play.

“When half the population is held back from taking full advantage of economic opportunities, we all suffer the consequences.”

Either way, when half the population is held back from taking full advantage of economic opportunities, we all suffer the consequences. As Sallie Krawcheck, the head of the women’s network Ellevate and co-founder of an index fund that invests in companies with women represented in their leadership ranks, has said, if women were as economically engaged as men in the economy, the nation’s GDP would be 7 to 9 percent higher.

But there are signs that things are beginning to change. Angel networks and venture capital firms are arising to focus on this vast underserved market. Meanwhile, technology is transforming the financial world and breaking down some of the barriers that have kept women and other entrepreneurs back.

Crowdfunding, for example, allows entrepreneurs to bypass traditional gatekeepers and reach out to their affinity groups and social networks for funding, in return for rewards or a financial stake. And a new crop of online lenders is using big data to assess risk in new ways, allowing them to lend to entrepreneurs that banks would sniff at – and approve them in a matter of minutes.

These developments promise to level the playing field for women entrepreneurs.

According to one recent report, “Stand out in the Crowd: How Women (and Men) Benefit from Equity Crowd-funding,” women are achieving a higher success rate raising investment capital online than they are through traditional offline channels: 24 percent for online compared to 19 percent for offline. CircleUp, an equity crowdfunding platform that targets emerging consumer brands, reports that women-led businesses closed their rounds successfully at a 21 percent higher rate than men on the platform did. Women lead nearly two-thirds of the companies that have successfully raised funds on the site.

The findings add to a growing body of data that shows women have been successful with rewards-based crowd-funding (where rewards are given to backers in lieu of a financial return). For example, on Kickstarter, one such popular site, women are 13 percent more likely to meet their goals than men are – even for technology projects. They do even better on Indiegogo, where 61 percent of women tend to meet their goals. Other sites, such as Plum Alley, focus exclusively on women.

Only 2.7 percent of companies that received VC funding between 2011 and 2013 had a female CEO

A similar trend is taking root in online lending. At Biz2Credit, a website that matches small business borrowers with lenders, approval rates for women-owned businesses have risen. Last year, 15.3 percent of such loans were approved, up from 11.7 percent in 2013, according to an analysis by the company of more than 15,000 loan applications submitted on the site. However, that still lags behind male-owned businesses, which were approved at a rate of 21.5 percent, up from 18.8 percent in 2013.

More encouraging, the volume of loan requests from female entrepreneurs increased significantly, with 36 percent more women entrepreneurs applying for credit last year. That suggests that women are feeling more confident about their businesses and are getting beyond their fear of rejection. In fact, the Biz2Credit study found that average revenues and earnings increased significantly in 2014 for women-owned businesses.

“Our analysis shows that a gender gap still exists, despite the increased profitability that we are seeing with women-owned business in recent years,” said Rohit Arora, CEO of Biz-2Credit. “However, women entrepreneurs should feel a sense of optimism, as the numbers indicate that the gap is narrowing.”

At Fundera, another loan-matching site, women make up 25 to 35 percent of loans approved on the site.

The new financing options could set off a virtuous cycle: more capital means more women will succeed, creating a base of successful female entrepreneurs who may go on to be angel investors and take a chance on other women entrepreneurs. And that would be good news for us all.

Amy Cortese is a journalist whose work has appeared in the New York Times, Businessweek, and other publications. Her book “Locavesting: The Revolution in Local Investing And How To Profit From It” helped popularize the concept of community capital. Her latest venture, www.locavesting.com, is a hub for local investing news, education, and resources.

http://www.microbiz.org/wp-content/uploads/2014/07/21st-Century-Barriers-to-Womens-Entrepreneurship.pdf

https://www.econbiz.de/Record/access-to-credit-by-small-businesses-how-relevant-are-race-ethnicity-and-gender-asiedu-elizabeth/10009706386

http://www.nwbc.gov/research/high-growth-women-owned-businesses-access-capital

 

 

 

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