Women have made considerable gains in the business world in the last few decades. As a recent WPO post highlighted, women now represent the majority of the workforce, owning or running nearly 46 percent of all businesses in the U.S. So why is it that woman-business enterprises (WBEs) only take in a fraction of the profits?
A major reason for this discrepancy has to do with lack of outside investments. According to the National Venture Capital Association only 4 to 9 percent of companies receiving venture-capital financing are women-owned. This statistic is consistent with a 2010 study by the Chamber of Commerce, which found women are much more likely to self-finance their businesses than their male counterparts who rely heavily on outside investors. On average, new WBEs start their life with only 64% of the capital of male-owned firms.
Even if new WBEs get off the ground, this lack of outside investments puts them at an immediate disadvantage.
“Women do not have a network of financial mentors upon whom they can rely nor the personal history of executive leadership that institutions look kindly upon,” says WPO member Collette Liantonio, President of Concepts Video Productions, Inc. “It’s a Catch 22.”
Yet many women owned businesses strive in spite of the lack of outside capital. Last spring, the Women Presidents’ Organization, in partnership with American Express OPEN, ranked the 50 fastest growing women owned businesses in the United States. The majority of the businesses started off self-funded (60%). Others relied on a mixture of their own savings, as well as loans from the bank, loans from friends/family, and an extended line of credit. Only 8% got their start from private investments.
“Female entrepreneurs, like their male counterparts, find it difficult to obtain bank financing to fund expansion of their businesses. This is particularly true for those businesses that do not have traditional tangible assets of real estate, equipment or inventory to borrow against,” said WPO member Susan Rector, who is a Partner at Ice Miller LLP, in Columbus, Ohio.
However, various studies show it pays to invest in women. A recent Dow Jones study entitled “Women at the Wheel” found “venture-backed companies that include females as senior executives are more likely to succeed than companies where only males are in charge.” The report also concluded that “companies have a greater chance of going public, operating profitably, or being sold for more money than they’ve raised when they have females acting as founders, board members, vice-presidents, or C-level officers.”
This is an encouraging claim for many women business owners looking to bring their enterprises to the next level.