What is Limiting Women in Entrepreneurship?
According to the State of Women-Owned Businesses Report commissioned by American Express, the number of women-owned businesses grew by 58% between 2007 and 2018. However, the number of businesses owned by women of color grew by 163%.
The role women of color (WOC) play in entrepreneurship is undeniable, as of 2018, women of color own nearly 47% of all women-owned businesses. However, in spite of the success of WOC business owners, they do not generate as much revenue as non-minority business owners. As stated in the State of Women-Owned Businesses Report, “if revenues generated by minority women-owned firms matched those currently generated by all women-led businesses, they would add four million new jobs and $1.2 trillion in revenues to the US economy.”
The Factors Behind this Gap
One major challenge that continues to hinder women's entrepreneurship is the lack of funding given to women-led ventures. In 2018, only 2.2% of venture capital was attributed to startups founded by women.
A study conducted by the Harvard Business Review found that venture capitalists were likely to ask women entrepreneurs about potential losses whereas they were more likely to discuss potential gains with male entrepreneurs. The study also revealed that women entrepreneurs were mostly questioned about prevention-oriented measures such as safety, responsibility, security, and vigilance. This line of questioning further creates a continuous cycle of bias that perpetuates funding disparities. In response to these questions, female entrepreneurs unintentionally remain in the domain of losses that harm their chances of entrepreneurial success.
Because most VC firms are composed of predominantly white men which circulate these unconscious biases, it is particularly difficult for women of color to access capital to invest in their entrepreneurial ambitions. For instance, The Small Business Administration Office of Advocacy reported that women and minority entrepreneurs are more likely to pay higher interest rates and denied loans than their white male counterparts. Women of color often face the most obstacles in accessing capital to finance their initiatives. While insufficient capital limits a firm’s potential, an inadequate support system and lack of professional networks can plague one’s chances to grow their business.
In order to break these social and cultural barriers to achieve the similar success of their male counterparts, women must work even harder to elevate their chances of succeeding. Because the realm of Venture Capital is focused upon a patriarchal foundation, it is imperative for venture capitalists to reevaluate their decision-making processes and interactions with fellow entrepreneurs to ensure that small firms have an equal opportunity to showcase their potential and to access sufficient capital.
Written by: Manavi Anantula| IQ Associate
