Why Investors Aren’t Supporting Women Entrepreneurs

Why Investors Aren’t Supporting Women Entrepreneurs

Women-owned businesses make up 36% of all businesses in the United States. In total, women entrepreneurs have created millions of jobs, generated billions in payroll, and trillions in revenue over the years. Though this success is highly encouraging, one  difficulty that is still holding women back is the inability to secure funding. Studies show that women-owned businesses get only a fraction of venture capital investments compared with those owned by men. Also, loan approval success rates are 15 to 20 percent lower for women than it is for men.

Access to capital is crucial for any business’s growth. While a large number of capable and trustworthy women are there in today’s business world, society must take the right steps to ensure that the right chance is given to them for achieving greater things. Here are the top reasons why women entrepreneurs are finding it difficult to generate the capital they need through investments and loans.

Startups Are Not Easy to Grow

Creating a startup is not an easy thing to do, regardless of gender.  In fact, studies show that most venture capitalists, financial companies and other types of lenders often deny the majority of entrepreneurs across the board. During most fiscal year cycles, only half of the total number of businesses applying for loans get them approved, regardless of the amount they asked for. So, combining the common challenges that all small companies face to generate investments with the unique challenges in front of women entrepreneurs creates the perfect storm.

The Profile of A Successful Entrepreneur Is Male

Even with an impressive business plan, excellent credit, and prove a solid cash flow, it can be difficult to navigate a process that will tilt towards favoring male-owned startups.Candida Brush, a professor in entrepreneurship at the Babson College provides insight into one of the important reasons why women entrepreneurs do not get funding for their initiatives – the profile of a successful entrepreneurship is male. Though this can be frustrating, it’s the reality of the business world. When asked to think of the great business-people of today, Mark Zuckerburg, Steve Jobs, and Bill Gates may come to mind before Sarah Blakely, Anastasia Soare, or Donna Karan. The only way to change this stereotype of the successful entrepreneur is to highlight the image of successful women.

Therefore, while women entrepreneurs do approach the investors, there is an unconscious bias that prevents the investors from seeing the women entrepreneurs as equally reliable as their male counterparts. Hence, they hesitate to fund their businesses. In order to solve this problem, Brush advises, “it may be time for the media, educators, and [investors] to recognize that successful entrepreneurs are not all like Jeff Bezos or Bill Gates.”

Most Venture Capitalists Are Men

Most venture capitalists tend to support startups that are run by those with whom they have a direct or indirect connection. The main problem that we face around today is that the business and political world is predominantly male. For every woman today, there are four men already running a Fortune 500 company. Even the venture capitalist world is made up of 89 percent of male investors. Women entrepreneurs are being overlooked when it comes to funding as these investors tend to favor giving the money to the men they are familiar with. Bonnie Crater, the President and CEO of Full Circle Insights says, ‘The venture capitalists always benefit their ‘tribe’ or the ‘Good Old Boys’ when it comes to funding.’ Nevertheless, there is hope for women entrepreneurs. Currently, about 11% of venture capitalists are women. Those firms with female partners are more likely to come forward and  invest in women-owned startups.

Intentional and Unintentional Biases

The example of Kathryn Minshew,  co-founder of The Muse, is a shocking one; however, her story highlights the difficulties women entrepreneurs face when it comes to securing funding. When she tried to raise the capital need to launch Muse, Minshew only saw doors closing in front of her. Most venture capitalists said they were not in the market to understand her pitch. While pushing further, she only received backhanded advice like, “Don’t get too big for your britches.”Even in cases where she was allowed to present her pitch, people mistook her confidence and leadership qualities as charm and flirtatiousness. Only after contacting over 200 venture capitalists did Minshew receive the funding she deserved.

Both intentional and unintentional discrimination limit the access that women have to investment funds. Investors, lenders, and  financial firms need to increase their awareness about the potentials of women to make a significant contribution to the business world.