By Annie Wilson, Intern
Last year Susan Coleman D.P.S. and Alicia Robb Ph. D published research prepared for the National Women’s Business Council examining the factors affecting access to capital for high-growth women-owned businesses. In their research, Coleman and Robb found that currently in the business community 30% of businesses were owned by women, however they are mostly small:
- only 12% of women-owned small businesses (WOSBs) employ anyone other than the business owner;
- 2% have 10 or more employees; and
- only 2% have revenues in excess of $1 million.
This new data shows the need to engage and educate women owned businesses on growth strategies that can expand their businesses.
This report delves deeper into the issues relating to capital accessibility specifically for growth oriented firms, which comparative studies have yet to research thoroughly due to a lack of data.
According to the study, access to capital may be more challenging for women-owned firms than for men for a multitude of reasons:
- In terms of financial capital, there are considerable gender gaps in the amounts of financing across firms. Men start firms with nearly double the amount of capital that women do and, of high growth firms, men use more than double of what women use. Men also indicated to have used six times the amount of financing that women do.
- For startup capital, women were found to be more reliant on owner equity and insider financing as opposed to men who used outsider equity predominantly. For women owned firms, a very small fraction of startup capital came from outsider equity regardless of where the firm was on the size spectrum.
- In terms of credit market experiences, women indicated to have similar loan application rates as men even though there are more unmet credit needs among women. Women were more likely to not apply for the necessary credit due to a fear of a denied loan application. Also, credit scores are generally lower for women.
- While men and women are on par in terms of education levels, men exceed women in degrees in the STEM fields, which is the industry that experiences more growth.
- By means of industry experience, as women tend to have lower levels of startup experience, team ownership and hours worked compared to men.
- Women have higher rates of owning businesses that are home-based due to family commitments and research has indicated that being home based is negatively related to growth.
However, when comparing the top ranking female businesses by employment and growth potential, there are some considerable differentiations that set them aside.
- They had a higher rate of employment from their startup year onwards.
- They are more likely to be in tech industries.
- They were more likely to offer services as opposed to products.
- They were less likely to be based from the owner’s home.
- They were more likely to be incorporated and as a result yield higher credit scores.
For leadership traits, women business owners of high growth firms also had some unique characteristics:
- They were likely to have more years of industry experience and more likely to have more startup experience.
- They started their businesses with much more capital (even more than the male owned firms overall.)
- They used more outsider equity for startup capital. However, this was typically still less than their male counterparts.
Learning from these success measures, it is clear that increased capital for women entrepreneurs, specifically in the startup phase of their business, has an important correlation to the trajectory of women owned businesses. In order to foster a more successful environment for women, there must be changes in the business environment to give women the support and resources they need to turn this trend around.
It is clear that the financing gap between men and women business owners is a considerable detriment to the vitality of women-owned firms. In order to ensure stronger female entrepreneurship and make strides towards closing this gap, efforts must be made to strengthen the financial capabilities of women entrepreneurs and encourage accessibility to bank and equity financing. Also, providing more visibility and accessibility to successful female industry professionals and providing more opportunity for women to attain industry experience could help bolster the entrepreneurial confidence that women need to compete with their male competitors. Another important step forward would be an increased use of family-friendly policies, which could give women the flexibility to work outside of their homes and in an environment more conducive to entrepreneurial growth.
Take a look at WIPP’s recently launched Access to Capital platform to address funding gaps and the crisis of capital faced by women entrepreneurs.
To read the full report, click here.