It’s no secret the tide is shifting in entrepreneurship, with women opening and running businesses at a feverish pace. In fact, these entities increased 21% compared to all businesses. If you were wondering what fuels the economy, it’s women-owned businesses to the tune of about $1.9 trillion dollars. While that seems like a lot of money, it’s only 4.3% of all business revenues generated.
Why do women open their own businesses?
A report by the Small Business Trends Alliance (SBTA) indicates 31% of women entrepreneurs are ready to be their own boss; 26% are pursuing a passion; 15% are dissatisfied with corporate America; 13% acted on opportunity; 6% were laid off; 5% aren’t ready to retire, and 4% had a life-changing event. With these motivators, women in business also take center stage in education, with 30% of owners having a bachelor’s degree compared to the national average of 17%. Additionally, women business owners with a master’s degree match the national average at 18%, but the owners with doctorate degrees are higher at 6% compared to 4%.
According to Fundera, women started 1,821 new net businesses every day in 2019, with 64% of those businesses started by women of color. 20% of newly founded startups in 2019 have a female founder, with 42% of new women-owned businesses in 2019. The five top trending areas of industry for women-owned businesses include:
- Health, beauty and fitness services
- Business services
- Food and restaurant
- Residential and commercial services
Although these are the top five trends, the three industries where women-owned businesses have the highest total revenue are in retail trade (14%), wholesale trade (17%) and professional, scientific and technical services (10%). In 2019, the states with the largest growth in women-owned firms were Michigan, Georgia, Florida, South Carolina and Nevada.
Leading the charge in opening businesses at such a high rate are women of color. Although they only represent 39% of the total U.S. female population, they account for 89% of the net new women-owned businesses per day over the past year. In fact, firms owned by women of color grew 43%, with African American women-owned businesses growing at a higher rate of 50%.
With so many businesses in existence, the disparity is still high. The average revenue for a minority women-owned business in 2019 was $65,800, which is a decline of 3% from $67,800 in 2014, even though 50% of women-owned businesses in 2019 are owned by women of color, employing about 2.4 million people and generating $422.5 billion in revenue.
Finding the funding isn’t that easy
Although things sound exciting, let’s take a look at how women-owned businesses fare in the funding department. To date, 70% of women seeking funding for their businesses are denied. In 2019, female-only founded companies raised $6 billion, with male-only founders raising $195 billion. In contrast, female founders with a male cofounder raised $20.9 billion. Interestingly enough, an online study discovered that venture pitches led by a male were almost twice as likely to be funded over pitches led by a woman. 68.3% over 31.6%.
Why is that? The disparity comes from how private equity and venture capital works, how financial institutions operate, and then there are the social norms, including mindset and bias. The good news is that things are shifting in their favor. In 2019, 21 women-led companies earned valuations of $1 billion or more, which is the highest ever raised in a one-year period. The best part? Women-owned businesses are delivering higher revenues than their male counterparts.
Additionally, women-owned businesses are thought to be in industries that are less appealing, have fewer assets when starting out and less capital than men-owned businesses which further fuels the bias from lenders. Due to these factors, the barriers to obtain funding is much more difficult to overcome than males, even though women have much better repayment records.
A study in the Academy of Management Journal indicates that women must change the way they interact with investors. When this occurred, even if the investor asked prevention questions, more money was raised. Even as VC funding continues on an upward trend, the disparities continue.
For women entrepreneurs, challenges are everywhere. Some of these challenges are attributed to:
- Women-owned and led businesses are concentrated in sectors less attractive to investors.
- Capital is a huge factor in the success of a business and women in business do not have it, nor do they have access to it. This results in women-owned businesses being smaller than a business owned by a male counterpart in terms of workers and value of fixed assets.
- Women start businesses later in life and are highly educated.
As the wave continues, women in business are starting to receive more funding at every stage. More attention is being drawn to the seed level, which was $1.2 million in 2019 on average, a significant increase from the $350,000 average in 2010.
Solving the problem
Finding venture capital firms that are willing to invest in women entrepreneurs is key. While the amount of women in business has doubled over the last five years, some of the new businesses can be attributed to these founders having more than one company at a time. The investing space is starting to look different, with female-focused venture capitalist firms working to increase representation in the investing space. Although funding for women in business increased in 2019, it was only 2.7%.
Women of color also have a hard time acquiring capital to run their businesses. Black women represent 42% of new women-owned businesses, but only 4% of those were able to raise equity financing.
Where can women entrepreneurs look for funding sources?
There are quite a few initiatives on the table, with more being created daily. Rebecca Minkoff started the Female Founder Collective with Swiss Bank UBS for early and growth stage female founders. Others include Aspect Ventures, Acrew Capital, LearnVest, Backstage Capital, BBG Ventures, Canvas Ventures, Define Ventures, Fika Ventures, Jane VC, Future Positive Capital, The Perkins Fund, Pear Ventures, Spero Ventures, Third Kind Venture Capital, Moxxie Ventures, Defy.vc, Inspired Capital, Ant Financial and others.
Due to the disparity in black women-owned firms being able to locate venture capital, there are firms like Harlem Capital, 1863 Ventures, Cleo Capital, Reign Venture Capital, Cake Ventures, Rethink Education, BLCK VC, Backstage Capital, Cross Culture Ventures, New Voices Fund, Essence Ventures, Kapor Capital, The Helm, BBG Ventures and a host of others keeping their focus on providing funding for black women in business to level the playing field.
There’s still work to be done
Even with women-owned businesses growing at twice the rate of average businesses nationwide, the face of entrepreneurship as it relates to giving women entrepreneurs a seat at the table is still questionable. The lack of knowledge or not knowing where to start researching is still a primary roadblock for many women entrepreneurs seeking funding. One of the first steps would be to join organizations that provide resources and a foundation to know what’s expected when getting that shot at funding. Without those resources, women entrepreneurs will remain stagnant in the same spot wondering what’s next.
Venture capitalists and angel investors who are making a conscious effort to help provide funding for women-owned business are doing the work, but is it enough? While there are 21 unicorns that shattered the myth in 2019, what’s on the table for 2020? 21 out of thousands of women-owned businesses demonstrates how much of the journey is still left to travel and make things equitable. Beyond the standard biases that exist, the education piece and availability is still not quite there, especially for certain industries. Knowing where to go is a start, but making a more concerted effort to provide information to new businesses on planning and moving forward to sustain through funding makes the difference.
In time, the hope is that gender will no longer be a factor in whether the business receives funding. Women entrepreneurs must become comfortable with pushing the envelope and going outside their comfort zones to not only engage with investors and advocate their vision, but pursue outreach efforts that can increase awareness of bias while helping produce and implement strategies to overcome it. The question is, who’s up for the challenge to bridge the gap between learning how to get to the funding, making a business attractive enough to get funding, and the criteria that may count them out.