As challenging as it can be for modern businesswomen to snag capital, they have a serious head start when compared to female entrepreneurs of past generations. Congress didn't pass the Women’s Business Ownership Act until the late 1980s to help eliminate gender discrimination in lending. Before that point, female entrepreneurs could not even get a loan unless a man co-signed it. Even raising private funding was nearly impossible for corporate-minded women with vision.
Since removing some of the barriers to female entrepreneurship, society has enjoyed the fruits of many women-founded companies. Despite this progress, women still lag behind when it comes to wooing investors. Their historical mistreatment, especially from financial institutions, may partially contribute to this ongoing — and frustrating — problem.
According to a study by Fundera, women ask for about $35,000 less in business loan financing than their male counterparts. If investors do grant their modest requests, women typically can expect to pay back the money at a higher interest rate than men. Despite these hurdles, women continue to follow their dreams and offer a helping hand to others treading the same path.
Women’s Role in Venture Capital
Many successful women value their mission to clear the way for women-owned businesses. As such, they routinely counsel their sisters in business to look for ways to finance their organizations, including raising venture capital.
To be sure, VC notoriously flows away from women: Only about 2% of the $131 billion raised in VC in 2018 landed in the hands of female entrepreneurs. But women are nothing if not creative, meaning they are willing to bootstrap their ventures and run leaner operations.
In truth, female entrepreneurs regularly post higher returns because they carry relatively little debt. Angel investors who take a chance on a strong idea run by a competent woman may well enjoy a higher percentage of ownership and an enviable return on investment.
Want to keep the momentum moving in favor of female founders? Focus your attention on fostering positive change through a few key actions:
1. Buy products and services from women-owned businesses.
Before purchasing anything, consider every alternative. This includes investigating similar goods and services offered by women-owned companies. Your choices may lead you to spend more money supporting organizations run by women, ideally setting a precedent for other women to follow suit.
Although I did not start my family-run business from the ground up, I went through unique struggles on my way to becoming CEO. Consequently, I have made a point to connect with women who grew their companies from humble beginnings. When it makes sense, I patronize women-run businesses to show solidarity.
2. Diversify your team.
Diversity and inclusion are more than buzzwords or numbers for HR. The more diverse your team members, the more innovative and agile you are likely to be as a company. Research from the Boston Consulting Group shows a link between workplace diversity and stronger financial performance. How much of a difference does diversity make in terms of money-producing innovation? The group's figures indicate businesses that hire managers representing a wealth of backgrounds enjoy 19% higher revenue.
Revisit your hiring protocols to ensure that you attract applicants who bring diverse skill sets and experiences to the table. Your profit margins may get a significant boost from your concentration on diversity and inclusion, which can be a huge boon if you need to raise additional VC or want to sell your business.
3. Hold financial institutions’ feet to the fire.
How supportive of women entrepreneurs are the financial institutions you regularly use? Do they invest in female founders? Or are they mired in the antiquated mindset that assumes women-owned companies present a high risk? If you are unsure where your bank or lender stands, ask for data.
If more successful women insist that their preferred financial institutions make capital accessible to female entrepreneurs under the right circumstances, the landscape will change. Besides, the banks and VC firms that back women-owned companies are not taking as much of a risk as they might think: As a Boston Consulting Group study noted, female-led businesses consistently brought in more revenue than comparable companies with male founders.
Women have only begun to hit their strides in many arenas, including business and politics. Our role as female leaders should be elevating the women around us by insisting on equal treatment for equal goals. This change will mean our daughters can concentrate on breathing life into their ideas rather than struggling to play against a loaded deck.