Women are starting businesses at about the same rate as men, but they have to do it with less access to a traditional source of startup funding.
Less than 3 percent of companies that got venture capital (VC) funding between 2011 and 2013 were headed by a woman, while just 15 percent of the companies had a woman on their executive teams, according to a new report from Professors Candida G. Brush, Patricia G. Greene, Lakshmi Balachandra, and Amy E. Davis for The Diana Project at Babson College. That means, of course, that 97 percent of the companies that got VC funding were led by men.
The good news is that women’s representation among VC-funded companies has risen pretty significantly. In 2011, just 9 percent of companies getting funding had women among their executives, which rose to 18 percent by 2013. And those numbers represent a sharp increase from 1999, when companies with women in leadership netted just 5 percent of VC funding.
The small share of money going to companies with women executives may be because so few women are on the other side of the table. VC firms with female partners are twice as likely to invest in a company with women in management, and three times more likely to invest in those with female CEOs. But number of women at those firms is dwindling: The share of female partners at venture capital firms fell from 10 percent in 1999 to 6 percent in 2013.
While some might justify the lack of VC funding by saying women aren’t interested in starting and running businesses or don’t have the right skills, women run more than a third of the country’s businesses, have a similar rate of working on starting or actively running a new business — 11 percent compared to men’s 16 percent — and launch companies at twice the rate of men. The Diana Project has also found, as the report notes, “many fundable women entrepreneurs had the requisite skills and experience to lead high-growth ventures.”
In interviews with the authors, women in business recognized the barriers in front of them. “I think there’s a built-in male network that’s existed for a long time in the venture community, as well as the entrepreneurial community, that takes people a long time to break into. Maybe there’s some unspoken biases and lack of encouragement,” one female VC partner said. “There is gender bias in funding women entrepreneurs in technology especially, but also in foods and other sectors,” a female entrepreneur in the food industry said.
These women are picking up on a proven trend: women face bias when they try to raise money. Even when presented with the same pitch, investors are more likely to pick the ones from men over those from women. Business school students are four times more likely to recommend investing in the same prospectus when the CEO is a man than when the CEO is a woman. In crowdfunding, by contrast, where entrepreneurs can access money directly without going through traditional gatekeepers, women-only teams are much more likely than male ones to meet their funding goals.
If a company with women in leadership does actually get VC money, it tends to get more than those without any women. Between 2011 and 2013, companies with women got $12 million on average, compared to $8 million for men-only ones. Companies with female CEOs got $8.8 million on average compared to $8.3 million for those led by men, not a statistically significant difference. And plenty of studies have found that companies with women in leadership end up outperforming male-only ones, making them good investments.