The number of women-owned firms increased by one-and-a-half times the national average between 1997 and 2015—74% versus 51%, according to The 2015 State of Women-Owned Businesses Report by American Express OPEN.
And other research tells us that those women are crushing it. Seed-stage venture capital firm First Round Capital found that its investments in companies with women founders performed 63% better than those with management teams that were all men. A September 2014 study by Babson College found that businesses with a woman on the executive team are more likely to have higher valuations at both first (64% higher) and last (49% higher) funding rounds.
But, when it comes to money, the numbers are much bleaker.
Businesses with women on the executive team received just 7% of venture funding between 2011 and 2013, according to that Babson study, and only 2.7% of those companies had a woman CEO.
In 2015, just 11% of Small Business Administration 7(a) loans went to businesses where a woman had majority ownership.
Lack of access to capital is a problem that affects the entire growth trajectory of many women-owned businesses, says Amanda Brown, executive director of the National Women’s Business Council (NWBC), a nonpartisan federal advisory council created to serve as an independent source of advice and counsel on economic issues of importance to women business owners. The organization’s 2014 report, Access to Capital by High–Growth Women-Owned Businesses, found that, on average, men start their businesses with nearly twice as much capital as women ($135,000 versus $75,000). This disparity is slightly larger among firms with high-growth potential ($320,000 versus $150,000), and much larger in the top 25 firms ($1.3 million versus $210,000).
Brown says that gender bias is a big issue in accessing capital. The world of venture capital is dominated by men, and "people put their trust in people that look like them," she says. On the lending front, she says bias is also a factor.
"We've talked to women that literally report the fact that they’ll walk into a bank, and they'll ask for information about a loan, and the loan officer will run to the back of the room and come back with a pink pamphlet on loans. That sort of bias is still very much built in," she says.
Brown says there are other related factors, too. Women-owned businesses are often one-person shops or in industries that don’t have the high-growth potential that VCs demand. They employ just 6% of U.S. workers and contribute less than 4% of business revenue, according to the 2015 State of Women-Owned Businesses report. When large publicly traded firms are excluded, they make up 31% of privately held firms, contribute 14% of employment, and 12% of revenue, the report says.
But that’s also a chicken versus egg factor, says Deborah Jackson. She and fellow Wall Street veteran Andrea Turner Moffitt founded New York City-based Plum Alley Investments, a private investment platform that connects women entrepreneurs with people who want to invest in their businesses. Women need mentorship to show them how to think bigger and grow their businesses, she says.
"What happens over time, people go, ‘Oh, women entrepreneurs aren't that successful.’ Well, why? Because they don't get the funding. Funding is like oxygen for companies," she says. And while the first round of funding is tough to land, second and third rounds are even more scarce, she says.
Brown says that because women tend to bootstrap longer, using personal credit cards and funds to keep their businesses going, they’re more likely to suffer dings on their credit report from high debt loads or late payments. That can make getting a loan more difficult, too, she says. Together, all of these factors stifle the growth of women-owned businesses.
Jackson says one of the primary keys to solving the problem is to get more women investing—and that can come from more women. According to the 2014 report, Harnessing the Power of the Purse: Female Investors and the Global Opportunity for Growth, coauthored by Moffitt and published by the Center for Talent Innovation, U.S. women exercise decision-making control over $11.2 trillion. That’s a whopping 39% of the nation’s estimated $28.6 trillion in assets that can be invested. And nearly half of that amount—$5.1 trillion—is managed solely by women. Plum Alley’s goal is to move more of that money through the pipeline to women entrepreneurs.
Independent producer and entrepreneur Nely Galán, former president of entertainment at Telemundo, says women need to look for where the money is. In her new book, Self-Made: Becoming Empowered, Self-Reliant, and Rich in Every Way, she advises women to look for "hidden money." This may include contests or grants designed for women-owned businesses. And while it’s not investment money, she says women entrepreneurs should seek out large companies’ supplier diversity initiatives that may offer lucrative business opportunities.
Brown is optimistic about the future of investment in women-owned businesses. She points toward companies like Plum Alley and Golden Seeds, another early-stage investment firm with a focus on women-led businesses as examples of innovative solutions to getting more money to women. Providing incentives to banks to offer the smaller loans that women-owned businesses often seek is another solution, she says.
She says the entrepreneurial marketplace is also responding. Alternative lenders are cropping up, although sometimes their interest rates are shockingly high. However, Able, an Austin-based lender, offers loans to entrepreneurs who secure a portion of the amount from their friends and family. Able’s growth level offers loans from $25,000 to $1 million to borrowers who secure the first 25% from their own network. Interest rates for such loans start at just 8%.
Brown also says that greater transparency about capital is important. The NWBC is actively speaking to lenders and venture capitalists about the disparity and working to create change. But it’s a slow process that requires making some people aware that there’s a problem in the first place, she says.
"I would like to think that it's not that men are just trying not to give to women, it's just that it's not a priority, it's not an opportunity. It's an unconscious reality at this point, so it's harder to then legislate change," Brown says.