Why is There (Still) a Gender Gap in Business Funding?
We can’t believe we even have to ask this question. It’s 2023 and there’s still a significant gap in venture capital funding between male-owned businesses and women-owned businesses. In 2021, only 2.4 percent of venture funding went to women-led startups. In 2022, this dropped to 1.9 percent for startups with all-women teams, with funding for mixed-gender teams at 17.2 percent. The last time all-women-led startups raised such a low percentage of funds was in 2012 during a period of economic decline.
What gives? Why do women have to fight so hard to earn the funds they need and deserve, in order to have a running shot at owning a business? Let’s unpack it.
The Female Funding Gap
Despite living in the 21st century with inventions like AI, cryptocurrency, and the mapping of the entire human genome, investing in women is still perceived as high risk.
Historically, women entrepreneurs have had a harder time accessing funding for their businesses compared to their male counterparts. This is because of factors like gender bias and discrimination, lack of networks and mentorship opportunities, and limited access to capital.
Women receive an average loan size of $38,942, which is almost $5,000 less compared to the average loan size men receive of $43,916. Maybe this is why only a quarter of women business owners seek business financing, compared to a third of male owners? Or maybe it’s because only 23.8 percent of women receive funding compared to 33.9 percent of male entrepreneurs?
Regardless, the fact remains that receiving smaller amounts of funding makes it difficult for women-led businesses to scale their operations and make a positive impact with their services or products. Forbes shares that women-founded companies in the venture capital firm First Round Capital’s portfolio outperformed those founded by men by 63 percent. This just goes to show how impactful women-owned businesses can be when given the right amount of financial support.
It’s crucial that more money gets put in the hands of women-led startups, because women are more likely to finance their businesses with personal savings or credit cards, which can put them at even more of a disadvantage in the long run. Plus, when more women have more money, this boosts the economy and financial stability of families and communities.
Which Industries Receive the Most Funding?
While the funding gap affects women-owned businesses across industries, there are some sectors that receive more funding than others. According to S&P Global Market Intelligence, “The technology, media, and telecommunications industry continued to lead other sectors in venture capital investment by attracting 32.7 percent of the total funding raised during December 2022. It was followed by the industrial sector at 20 percent and the healthcare sector at 15.6 percent.”
The industries that tend to receive the most funding for female entrepreneurs include healthcare, education, and technology. These industries are perceived as high-growth and offer significant opportunities for innovation and disruption. However, women-owned businesses in other sectors, such as retail and hospitality, often struggle to secure funding, even though they are critical to the economy and provide jobs to millions of people. Not to mention that the COVID pandemic severely impacted women-owned businesses in industries such as retail and hospitality, further exacerbating the funding gap.
How Can We Move Forward?
Funding equality will never be reached unless there are more initiatives aimed at promoting gender diversity and equity in entrepreneurship, and reducing gender bias in funding decisions. It’s crucial that investors and policymakers work to address the barriers that prevent women-owned businesses from securing funding. But what can the average citizen do to make a difference? By providing more resources and support, we can help level the playing field and create a more equitable business landscape.
Here are some ways we can start:
#1: Make a conscious commitment to put more money directly in the hands of women by buying from female-founded companies. Check out marketplaces like Dough and We Are Women Owned for great directories of where to spend your dollars in a way that directly supports female founders.
#2: Boost investments in women founders by lobbying our government and financial institutions to expand small business lending programs, grants, and other funding mechanisms for female founders.
#3: Move our money away from banking systems that aren’t actively offering programs that support female-only founders and shift your dollars to an institution that is built by women and for women, like Ellevest.
#4: Minimize the burden and requirements required for small business lending so female founders can get start-up funding from their local bank without three years of tax returns. This includes pushing for tighter regulations on capital institutions that have predatory lending practices in the form of high-interest lines of credit and loans that target women and minority-owned businesses.
#5: Create and contribute to more cooperative and accelerator models, like iFund Women and Graham & Walker, and invest in each other through education, development, crowdfunding, and other group financing mechanisms.
We can’t keep waiting for venture capitalists to change. We need to start looking for other strategies to ensure that women-founded startups receive the funding they need to thrive. With more women than ever before starting businesses of their own, and women in the majority spending seat, don’t wait for the systems to decide women are worth the investment. Let’s disrupt the financial future for female-founded companies everywhere.