These days, it's nearly impossible to peruse your favorite business outlet or watch the nightly news without seeing a headline about sexual harassment or the shocking inequities that female entrepreneurs face. As discouraging as it may seem, the truth is we all need to be "woke" in terms of systemic social injustices, particularly regarding race and gender. Our collective awareness of these disparities is precisely what is needed in order to move the conversation forward.
With that in mind, as we enter the holiday season--a time for reflection, spreading cheer, and inciting general goodness--I think it's also a perfect opportunity to understand just how far we've come so we have a better sense of what lay ahead of us. Not as women business owners, startup founders, or solopreneurs, but as a unified group. We have a tremendous amount of progress to make; yet, we have much to celebrate.
Let's give them something to talk about
For starters, it may surprise many Americans that 40 percent of the businesses in their country are owned by women. This means that roughly every other storefront, digital or physical, has a woman at the helm. According to a recent 2018 State of Women-Owned Businesses report, the number of companies owned by women increased almost 31-fold between 1972 and 2018--from 402,000 to 12.3 million. If we look at 2007 to the present day alone (a little over a decade), this number has grown by 58 percent. That's some serious progress.
The report further explains the significance of this upward trend, but concludes that while female-owned businesses are certainly on the rise, they only account for 8 percent of the total private sector workforce and contribute 4.3 percent of total revenue.
"The reasons are multifold," says Geri Stengel, research advisor for American Express (the company that commissioned the Women-Owned Businesses report). "One reason is that women are more likely than men to be part-time entrepreneurs supplementing their income because they are either financially struggling or need flexibility due to caregiving responsibilities."
Many factors are implicated in the disparities that female entrepreneurs still contend with--from biased investors to unique economic challenges to the realities of motherhood. But this doesn't mean we should lose hope. While the imbalances may be stubborn, there are many effective strategies for addressing them.
Analyzing the investment gap
Another reason for the massive gap between the number of businesses owned by women and the revenue they generate is the fact that a smaller percentage of women raise capital to fund their companies. The current statistic often cited is that "women only received 2 percent of all venture capital investment in 2017"--a proportion that was even lower in previous years. However, to give this more context: According to All Raise, a nonprofit dedicated to increasing this percentage, female founders raised only 15% of venture capital. The 15% differs from the often cited 2% because the latter refers only to all-female founder teams. While 15% isn't phenomenal, it does signal progress.
One explanation for this disparity is that only 9% of VCs are women--a number that is increased in the last few years nas more women started launching their own venture funds. The still blaring investment gap may also be caused by bias, which can creep into the attitudes of both male and female investors.
A 2018 study published in the Academy of Management Journal found that investors (both men and women) are more likely to ask female entrepreneurs "prevention" questions, whereas male entrepreneurs receive "promotion" questions. This means investors are more concerned about potential losses with women, but they want men to tell them all about their ambitions and the growth potential of their businesses. Unsurprisingly, entrepreneurs who are asked "promotion" questions typically receive more funding.
It's likely that a lack of female influence at investment firms and bias among investors are both responsible for the investment gap--along with other factors, such as unique economic obstacles that women (particularly women of color) face.
Narrowing the investment gap
One way to address the gross imbalance between the number of female business owners and the amount of money invested in their companies is to change the norms and expectations around women and entrepreneurship. This can be done by facilitating engagement between female entrepreneurs and increasing the exposure of their businesses.
For example, ModernCapital recently released a report about women in Tennessee's startup ecosystem, which recommends improving "the visibility of female-founded and led startups through speaking opportunities across community events, networks, and conferences."
As the study in the Academy of Management Journal demonstrated, women have to change the way they interact with investors. Instead of confirming the "prevention" paradigm by convincing prospective investors that their goals are modest and underwhelming, they should make "promotion" the focus of every conversation. The researchers found that, when entrepreneurs did this--even if investors insisted on asking them prevention questions--they raised far more money.
If you're reading this and thinking "but I'm not comfortable with self-promotion," then just know that it may be something for you to get over in order to get over to the other side. Pro tip: Hire a specialist like Meredith Fineman to coach you through the process. She's been working with women and writing about the idea of "bragging better" for years.
In essence, female entrepreneurs must learn how to engage with investors and be more confident advocates of their vision--which would include the "community events, networks, and conferences" suggested by ModernCapital. These engagement and outreach efforts could also increase the awareness of bias and produce strategies for resisting it.
Putting the investment gap in a broader context
At a time when #MeToo revelations of widespread harassment and assault in the workplace have opened up a wider conversation about gender equality in our society, female entrepreneurs need to capitalize on this momentum to highlight the problems they face. And this conversation has to be as inclusive as possible, encompassing the concerns of women (and men) across racial and socioeconomic divides.
For example, it may seem encouraging that the Women-Owned Businesses report found that the number of companies run by women of color increased by 163 percent between 2007 and 2018. But what does that number actually tell us? As the authors of the report put it, after the Great Recession, "Women of color, even if employed, turned to entrepreneurship in far greater numbers to make ends meet." In other words, these women were often "necessity entrepreneurs" instead of "opportunity entrepreneurs"--economic distress is what led them to start their businesses, not the pursuit of market opportunities.
Starting a business out of necessity isn't necessarily a bad thing, it's just a solid reminder that women are often motivated by different factors than their male counterparts. This fact is likely why the venture capital discrepancy is so glaring, and why the percentage of investment dollars that go to females seems so abysmal comparatively speaking.
Where we go from here
The truth is, it doesn't matter if a woman is launching a business or asking for a raise--we all have to get to a place where gender is no longer a crucial determinant of success. Part of this requires an implementation of new strategies by females who are seeking funding. The other aspect is taking individual responsibility for how we approach launching our businesses and the attitudes and behaviors we employ. In other words, we may have to go outside what seems natural or customary in order to bridge the gap.
On the other side of the table, it requires those with the resources to revisit how they make decisions in terms of what constitutes a viable business. Not to point out the obvious, but a tremendous amount of waste is created every day with over-funded startups, and one unicorn company "making it big" (which happens roughly every five years) shouldn't drive the investment strategy of an entire industry.
René Yang Stewart is co-head of the Vista Endeavor Fund at Vista Equity Partners, and she explains her investment decisions: "I've never looked at the world like female versus male--I treat every CEO as a person." What a great way to see the world. Perhaps it's time for the rest of us to do the same.