Women in Entrepreneurship

issue brief about women in entrepreneurship

• SQUO
• what's happening now (problems they're facing)
• relevant policy (jobs act)
• what's being done (tax credit in canada, crowd funding by women, what's the US doing)

Introduction

Over the past century, the United States witnessed two concurrent social trends, both of which had a significant impact on the country's economic growth: first, women have gone in large-scale numbers into the official labor force, and second, the country as a whole but particularly women are achieving a higher degree of education than in years past. However, economists predict that economic growth from these two trends is unlikely to be repeated to the same magnitude; room for growth is smaller than it was before and these trends have slowed from their spikes in the mid to late 1900's. With this, everyone is looking for the 21st Century economy-boosting equivalent to women entering the labor force and higher educational attainment. Given the slowing rates of business creation, the long-term pessimism about growth in the United States, and the rising share of women among educated workers, it seems clear that the future of American entrepreneurship and growth is in the hands of women. Encouraging women to enter into fields of entrepreneurship, particularly high-growth entrepreneurship, might be the silver bullet economists seek.

Status Quo

Overall, women-owned businesses account for slightly less than 1/3 of all businesses in the United States, but at first glance the statistics portray a positive picture for the field's growth: the number of women-owned firms has grown 68 percent since 2007, compared to only 47 percent for all businesses. [1]. However, these women owned businesses are typically only run by the woman herself; the Kauffman Foundation reports that among employer firms, women-owned businesses account for only 16% of the total, and their shares of revenue and employees are in the single digits. [2]

Numbers aside, Americans hold a negative view of women in entrepreneurial leadership roles. According to data from a 2015 Pew Research Center survey, 43% of Americans believe that the U.S. is not prepared to hire women for top-tier executive positions. A relatively smaller, but still significant, number of Americans (23%) believe that women don’t have the time to hold an executive position, given their “family responsibilities”. [3]

The American public's generally negative perception of women in entrepreneurship presents itself institutionally as well. Even though female founders perform equal to or better than their male counterparts when raising money online, only 10 percent of startups which raised Series A last year had female founders. Today's venture capital environment clocks some 305 active funds over $100 million, collectively putting $114 billion to work. 90% of these funds never see a female founder. [4] Texas claims the worst record of supporting women seeking venture capital. Last year, 42 Texas startups got Series A rounds. Not a single startup had female founders. Structurally, ninety-four percent of decision makers at venture capital funds are male. Among chief executives of S.&P. 1500 firms, for each woman, there are four men named John, Robert, William or James. [5] But venture capital firms with women partners are more than twice as likely to invest in companies with a woman on the executive team and three times as likely to invest in companies with women CEOs.

Though at first glance women-owned business growth seems striking, the numbers are deceptive in that their shares of revenue and employees are in single digits. Furthermore, women who do go into entrepreneurship face societal disapproval of their actions, with a plurality of Americans believing not only that the country is not prepared to hire women to executive positions, but also that women are incapable of holding these positions due to their family responsibilities placing a time constraint on them. Further, women get start-up capital for their companies 2-3x as often from women-led VC funds, but only 6% of decision makers at VC funds are women. It's no wonder women are vastly underrepresented in this field.

What women need

Almost half-of female founders (48 percent) cite a lack of available mentors or advisers as holding them back. A third say lack of capital is a constraint.

Relevant policy

The Obama administration recognized the importance of expanding the role that women-owned businesses play in the national economy. Some of his initiatives include increasing access to capital, incentivizing small business growth and hiring, encouraging women owned business competition for government contracts, and enhancing long term survival of women owned businesses.

The president has worked on increasing access to capital through the Recovery Act and the Small Business Jobs Act. Through this act, the president has reformed SBA lending practices and built on existing infrastructure. SBA loans are 3-5x more likely to go to women and minorities than traditional business loans. Over 12,000 SBA Recovery loans have gone to women-owned small businesses, totaling more than $3 billion. [6]

The president has also increased tax cuts with the aim of helping small businesses invest in their firms and create jobs. Specific to women, the SBA opened several new Women's Business Centers in 2009 and 2010, bringing their total to 114. The SBA is working to finalize two programs that will help train more entrepreneurs who are either veterans or part of military families.

Two primary pieces of legislation have bolstered the limited growth that the United States has seen in this field: The Small Business Jobs Act of 2010 and the Women’s Equity in Contracting Act. Both of these seek to help businesses headed up by women win more government contracts.

“Things like that really aim to put women-owned businesses and minority-owned businesses at a competitive advantage,” says Jessica Milli, a senior research associate at the Institute of Women’s Policy Research (IWPR). “It restricts competition, which has really helped to boost revenues and help more businesses get into the industry.” But such policies can’t, and haven't, solved all the challenges inherent to being a female business owner. Women business owners still face a significant wage gap and continually have smaller amounts of start-up capital than their male peers.

SQUO facts

• Texas claims the worst record of supporting women seeking venture capital. Last year, 42 Texas startups got Series A rounds. Zero of them had female founders. [7]
• The cities in the United States where the combined economic clout of female founders is growing fastest are San Antonio; Portland, Oregon; Houston; Atlanta; and Riverside, California. [8]
• Facts about female founders and raising capital

15. No matter which crowdfunding platform they choose, female founders perform equal to or better than their male counterparts when raising money online.

16. Offline, it's a different story. Only 10 percent of startups which raised Series A last year had female founders. Today's venture capital environment clocks some 305 active funds over $100 million. These funds collectively put $114 billion to work. Ninety percent of it never sees a female founder.

17. That said, venture capital firms with women partners are more than twice as likely to invest in companies with a woman on the executive team.

18. Venture firms with a woman partner are more than three times as likely to invest in companies with women CEOs.

19. Ninety-four percent of decision makers at venture capital funds are male.

20. Even so, there is more venture for women, and the women's entrepreneurial ecosystem is gaining traction, as angel investor Kelly Hoey points out in Inc.

What women entrepreneurs say they need

29. Almost half-of female founders (48 percent) cite a lack of available mentors or advisers as holding them back.

30. Only a third say lack of capital is a constraint.

According to data from a 2015 Pew Research Center survey, 43 percent of Americans believe that women in executive business positions are held to higher standards than men, and the same percentage believes that the U.S. is not prepared to hire women for these top-tier positions. A relatively smaller, but still significant, number of Americans (23 percent) believe that women don’t have the time to hold an executive position, given their “family responsibilities” [9]

[10]

• most companies understand that an all-male board looks bad, and so most of them appoint at least one woman, although only a minority bother to appoint more than one. Far fewer of these large firms — currently one in 25 — are run by a woman serving as C.E.O.
• Among chief executives of S.&P. 1500 firms, for each woman, there are four men named John, Robert, William or James.

[11]

• The number of businesses owned by African American women grew 322% since 1997, making black females the fastest growing group of entrepreneurs in the U.S.
• “We attribute the growth in women-owned firms to the lack of fair pay, fair promotion, and family-friendly policies found in corporate America,” she said. “Women of color, when you look at the statistics, are impacted more significantly by all of the negative factors that women face. It’s not surprising that they have chosen to invest in themselves.”

[12]

• The progress for minority women has been particularly swift, with business ownership skyrocketing by 265 percent since 1997, the report says. And minorities now make up one in three female-owned businesses, up from only one in six less than two decades ago.