Today, women entrepreneurs own nearly 40 percent of all businesses. Likewise, women entrepreneurship accounts for over $1.4 trillion in sales revenues. These are truly amazing statistics given that few women entrepreneurs are able to access the funds they need. Research recently conducted at Columbia University highlights how common gender discrepancies vary when it comes to investment funding. Because of this, women entrepreneurs are at a clear disadvantage compared to men. Unfortunately, this not only hurts these business women but the economy as a whole.
The Study – Women Entrepreneurs’ Experiences with Venture Capitalists
Recently reported in the Harvard Business Review, researcher Dana Kanze recorded women entrepreneurs’ experience when seeking venture capital funding. More than 200 videos were reviewed where women entrepreneurs were interviewed by potential business investors. It didn’t take much to appreciate how differently women entrepreneurs were treated when compared to men. Investors were much more likely to ask the women how they were going to avoid loss and failure. In contrast, questions to their male counterparts tended to focus on how they would realize success. Overall, venture capitalists seemed to perceive women entrepreneurs as a glass half-empty while the opposite was true for male entrepreneurs.
Of course, venture capitalists need to perform their due diligence. But the way they approached women entrepreneurs were notably different when compared to men. The researchers examined the interviews in greater detail and found additional evidence of gender bias against women entrepreneurs. When interviewing men, venture capitalists used words like “achieve,” “accomplish,” and “aspire.” When interviewing women entrepreneurs, however, commonly used words included “avoid,” “fear”, and “loss.” From the start of the interview, they were immediately characterized as potential failures rather than potential successes.
Funding Bias – Numbers Don’t Lie
So, how bad is venture capital funding biases against women entrepreneurs? Among venture capital funds awarded in 2017, only 2 percent were allocated to businesses led by women alone. In contrast, men-led businesses received 79 percent while mixed gender businesses received 12 percent. These statistics highlight major challenges for business women. As Sheryl Hunter of Hunter Business Law describes, women need “access to capital, access to decision makers, and to be in the right room at the right time.” Limited access to needed capital remains a tremendous handicap for women entrepreneurs.
Such challenges are even worse for women entrepreneurs who are also racial minorities. Businesses led by Black business women receive only 0.2 percent of venture capital funding. Despite owning over 1.5 million businesses and generating over $4.5 billion in sales, Black women entrepreneurs rarely received capital funds. Camille Renshaw, of Renshaw Company, notes “At this point in time, there are 14 Black women worldwide who have raised a million dollars or more.” While barriers for all women are significant, those to minority women entrepreneurs are most profound.
One reason for these biases against women entrepreneurs may relate to the capital investor profiles. After all, women comprise only 11 percent of venture capital firms.
The research, however, did not support this assumption. In fact, women asking questions to women entrepreneurs were just as likely to focus on loss prevention than success promotion. Regardless of the gender mix of venture capitalist panels, women have reduced rates of success in attaining capital. When compared to men, women entrepreneurs received 15 to 20 percent fewer approval responses by venture capital lenders. These patterns highlight why the total venture capital funding for women remains so low.
Barriers for Women Entrepreneurship – Why is Funding So Difficult?
The dismal numbers related to women entrepreneurship and venture capital funding are not attributable to a single cause. Instead, the challenges they experience fall into a few categories. In an effort for them to get the funding they need, it is important to appreciate each of these factors.
Capital Funding is Hard for Everyone
Regardless of your gender, attaining capital for business ventures is challenging. The overall approval rate is only around 50 percent. Thus, while women entrepreneurs clearly are at a gender disadvantage, even men entrepreneurs have a difficult time in this area. Venture capitalists are in the risk-taking business, but they also are prudent about the risks they take. Therefore, gaining capital funding can prove to be challenging regardless of whether you are a women entrepreneur or not.
False Stereotypes are Pervasive and Hard to Overcome
When you think about successful entrepreneurs, who comes to mind? Probably not a women entrepreneur. The fact of the matter is that successful entrepreneurs are typically portrayed as men. To some extent, the male image of an entrepreneur is perpetuated through self-fulfilling behaviors. Women history of entrepreneurship is more limited, and changing the public image of a prototypical entrepreneur overnight is difficult. As long as most entrepreneurs are perceived as men, women will continue to struggle in accessing capital.
Biases Are Often Unconscious
As evident by the female investors in the study who perceived women entrepreneurs as higher risk, biases are often unconscious. People can be socialized into believing something that is not true. This is the case when it comes to women entrepreneurship. When false beliefs exist for a long period of time, people may not even be aware they exist. Therefore, women face the challenge of not only overcoming biases but making others aware of them. As history has shown, this is not an easy task.
Good Ol’ Boy Networks Still Exist
With nearly 90 percent of all venture capitalists being men, it should be of little surprise that women have an uphill battle. Men entrepreneurs who receive venture capital often have some level of connection with their investors. They may have attended college together, worked at the same firm, or known each other socially. For women entrepreneurs, breaking into these networks is inherently more difficult.
Downsides for Venture Capitalists – Lost Opportunities
Women entrepreneurs are not the only stakeholders in this situation who are missing out on business opportunities. So are investors! Today, roughly 30 percent of firms in the technology industry are run by women business leaders. Likewise, diversity in the workplace is clearly linked to creativity, innovation and competitive value. Women entrepreneurship offers such diversity. Failing to recognize the potential business women offer means venture capitalists are missing out on some great investments. Letting women entrepreneur stereotypes and biases get in the way is therefore self-defeating.
Not everyone feels this way, of course. Melinda Gates, founder of Pivotal Ventures, has made it a priority to invest in minority business leaders and women entrepreneurs. In fact, she has committed over $170 million to be used for capital investments for women and minority entrepreneurs through her company.
Camille Renshaw shares similar sentiments regarding women entrepreneurs from the DreamIT Urban Tech conference. For her, they are an untapped market providing her investment firm huge opportunities for success.
Strategies for Women Entrepreneurs Today
While change may be slow to occur, women entrepreneurs can be proactive in their efforts to gain necessary funding. One important strategy involves doing homework. Sara Margulis of Honeyfund describes exclusively from the Synapse Summit, “A venture capital firm that doesn’t have a good track record with women is not going to be a good fit.” Instead, women entrepreneurs should pursue firms with higher numbers of female investors and those with more diverse pursuits. As a result, the potential bias will hopefully be less.
Other strategies for women entrepreneurs today involve how they discuss their business ideas. Based on the evidence, investors will likely focus more on the negative when it comes to women entrepreneurs than the positive. However, women entrepreneurs should try to shift gears and talk about the positive attributes of their vision. Rather than addressing how they will avoid investment loss, they should talk about how they will succeed.
Does this strategy work? You bet! Women entrepreneurs who “spun” their answers in a positive way received $7.9 million compared to $563,000 for those who didn’t.
Lastly, women entrepreneurs should explore opportunities for capital investments through proven resources when possible. For example, several organizations have specific investment programs for women entrepreneurs. Organizations committed to business women include the National Association of Women Business Owners, the Small Business Administration, and various women peer lending groups. Exploring these resources may be more rewarding, and less frustrating.
Reason for Hope – The Landscape is Changing
The good news is that the venture capital funding landscape is changing. In addition to the number of women in venture capital firms, some women entrepreneurs are founding their own investment companies. Understanding the investment struggles women have, many seek to support women entrepreneurship specifically. Such is the case with Melinda Gates and Camille Renshaw. Given the success business women have already had without these supports, the future for women entrepreneurship should be quite intriguing.
John R. Miles
EVP & Associate Publisher
John R. Miles is Executive Vice President of Business Development and Associate Publisher of Bold Business. He is a sought-after motivational speaker and writer. He brings visionary leadership style and talent as a Navy Veteran and an internationally experienced CEO, COO, and Fortune 50 CIO across a multitude of industries. Miles is also an operating partner at the Virgo Investment Group where he is responsible for identifying and pursuing new investments while supporting existing portfolio companies with operational expertise. He is active on Linkedin and Twitter and published in a variety of media. Miles graduated with honors from the U.S. Naval Academy where he was a varsity athlete.