Women are starting more than 1,200 companies a day, according to The 2014 State of Women-Owned Businesses 2014 Report. Unfortunately, most of these businesses will grow up to be runts because women are underfunding their companies.
What’s holding women back? Some causes are internal -- women don’t ask or dream big -- and others are external, such as the type of businesses we choose to start are less attractive to funders and, yes, there is discrimination among some funding sources.
Why should you care that women entrepreneurs are an underperforming market segment? If women aren’t dreaming big, asking and receiving funding, half the population isn’t contributing all it can to economic growth and job creation.
Access to capital is crucial to start-up and growing companies. Undercapitalized companies have lower sales, lower profits and generate fewer jobs.
Two recent reports, Access to Capital by High Growth Women-Owned Businesses, conducted on behalf of the National Women’s Business Council (NWBC) and 21st Century Barriers to Women’s Entrepreneurship, conducted on behalf of the U.S. Senate Committee on Small Business and Entrepreneurship, confirm the underfunding of women entrepreneurs and the need to support women so they can reach their potential.
Of course, not all women want to start big businesses. That’s fine. It’s a valid choice. But, interestingly, the difference in capitalization between men and women grows wider when a woman wants to grow her business big. High-growth, women-owned businesses started with less than half as much money as their male counterparts, according to the NWBC’s report. The difference was even more acute among companies raising equity financing -- these companies aspire to be huge. Women received 2% of total funding from outside equity compared to 18% for men.
We are at the dawn of a new era. There is a growing recognition that:
- Women are an undervalued force that can rekindle the economy. Six million jobs would be created over 5 years if women entrepreneurs started with the same amount of capital as men, according to Babson.
- Women have what it takes to raise money, use it efficiently and perform better than all male-led companies. Research from Dow Jones VentureSource, Illuminate Ventures, Kauffman Foundation, and the SBA Office of Advocacy documents the higher performance of women-led companies.
- Women need support to meet their potential. Both the NWBC and Senate reports recommend providing more business counseling and training. The stats of organizations, such as Astia and Springboard -- two organizations that provide mentoring and access to capital (Springboard also provides training) -- prove the effectiveness of support. Within one year of presenting at Astia, 60% of companies achieve funding or an exit. Springboard’s companies have an 83% fundraising success rate and have raised $6.5 billion throughout their lifetime. As the chart below shows, accelerator programs such as Springboard work.
- The federal government can play a big role by shining a light on the issue and increasing funding for Women Business Centers and other organizations.
- Big corporations can get involved, too. Some corporations, such as American Express, Dell, and EY are creating support programs for women entrepreneurs. Yes, there is something in it for them. By understanding the challenges women face and how to solve them, women reward these corporations by becoming loyal customers.
- Foundations are part of the solution. The Tory Burch Foundation is working with Goldman Sachs to provide training to women entrepreneurs. It also works with Bank of America to provide affordable loans, mentoring support and networking opportunities.
- Women can use their expertise, influence, and money to help each other grow women-led companies. I’ve written about this in Forget the Glass Ceiling: Build Your Business Without One and the growing number of women who are angel investors and their impact on women entrepreneurs.
- Men need to be part of the equation. They have the power and money to effect change faster than if women do it by themselves. I’ve written about some of the men who support women but there are so many more, including Ed Zimmerman, a lawyer, founder of an accelerator, and angel investor who made a pledge against gender bias in tech.
- Crowdfunding can be a significant source of financing for women entrepreneurs. They are showing early signs of success with rewards-based crowdfunding. Equity-based crowdfunding has the potential to be an even greater source of funding. Join me for a panel discussion called Women: A Big Opportunity for Crowdfinancing at the Crowdfinance 2014 Conference.
We know the obstacles and how to fix them. How can we galvanize change?
The NWBC will be leading the charge by organizing convenings in New York City and San Francisco. “... it is our hope that this research will incite the action needed to strengthen the access to capital for women,"said NWBC Chair Carla Harris. “As a Council, we will be doing outreach to the funding community, in particular, to advocate for more direct outreach to women from traditional sources of funding. We will also be hosting a handful of briefings in September and October to illuminate the research findings, to discuss new emerging, alternative sources of capital and to define a call to action based on the recommendations we’ve outlined."
Whether you’re a women entrepreneur in need of money, training or connections, or a provider of money, training or influence, how will you become a part of this movement?