Women own or co-own 45 percent of all businesses in the U.S. They employ 9.4 million workers and generate $1.9 trillion in revenue, according to the Small Business Association (SBA). It’s clear that women are an integral part of the U.S. economy and the small business landscape. But the road to becoming a business owner as a woman in the U.S. is not easy. Why is that?

The gender investment gap

Perhaps the biggest or most glaring issue is access to capital. While it’s hard to start a business in general – only half of all small businesses that apply for a loan are approved for any money at all – it’s even worse for women. The loan approval rate for female entrepreneurs is 15 to 20 percent less than it is for men.

In terms of raising funds, women CEOs get only 2.7 percent in venture capital available each year.

In 2019, women got 2.7% of total investment

  • All-male founders - $110.17 billion
  • All-female founders - $3.54 billion

Why is this happening?

There is a myriad of complicated reasons for this. Some of which could include:

Lower valuations

All-female founders received lower valuations than all-male founders ($12 million vs $25.5 million). What is a valuation? It is a methodology to estimate and understand the value of a startup which is usually an agreement between a startup and its potential investors. If a business hasn’t made any profits (early-stage or pre-revenue), they use a valuation method to determine value. While there are a lot of things at play, generally speaking, a higher valuation can help you raise more money in rounds of investing. If a woman-owned business starts with a lower valuation, then they could receive less money overall.

Bias

Many of us are predisposed to believe that the model of a successful business owner is male. Bias perpetuates the idea that women are a risky investment, which is not true. Take a look.

  • According to McKinsey, companies in the top quartile for gender diversity are 21 percent more likely to have above average profitability than companies in the bottom quartile.
  • Companies whose leaders are at least 30 percent female have net margins 6 percent higher than companies with no women among senior ranks.
  • Despite women receiving fewer investments, they generated 10% more in cumulative revenue over a five-year period, according to a BDG study. That means that for every dollar of funding, startups founded or co-founded by women made 78 cents, while male-founded startups made only 31 cents.

Lack of venture capital (VC) diversity

Many venture capital firms are owned or run by men. Without equal representation in positions that make decisions, it’s easy for VC partners to invest in people that are like them, perpetuating the idea or appearance of a ‘boys club.’ However, we are seeing more and more women being named to VC partners. In fact, women are receiving more money than ever before. While progress might be slow, it is happening. And that’s good because studies show that when women are in positions of power at VC firms, profits are higher.

  • A Harvard study showed that venture capital firms that increased female partner hires by 10 percent increased their profitable exits by 9.7 percent. For perspective, less than 30 percent of venture capital exits are profitable, so this jump is important.

What are some resources to make raising capital easier?

Work with female run VC firms

If you feel like you aren’t being represented, find a place where you feel like you are. Search out venture capital firms that are run by women or have a record of investing in female entrepreneurs. Here are a few to help you get started:

  • Rethink Impact
  • New Voices Fund
  • Portfolia
  • Merian Ventures
  • JumpStart Focus Fund
  • Jane VC
  • Intel Capital Diversity Fund
  • Golden Seeds
  • Female Founders Fund
  • Bumble Fund
  • Belle Capital USA
  • BBG Ventures
  • Backstage Capital
  • Amplifyher Ventures
  • SoGal Ventures
  • Forerunner Ventures
  • Brilliant Ventures
  • Halogen Ventures

Consider applying for a grant

Unlike a loan, you don’t have to pay back a grant so it’s basically free money. However, whenever there is anything free, there are stipulations and competition is tough. If your business is eligible and you are up to the challenge of researching and applying, we say go for it. There are a lot of people and organizations that want to give you money! Here are a few to look for via NerdWallet:

  • Federal small business grants for women: Grants.gov, The Girlboss Foundation Grant, and the Small Business Innovation Research Program, and Small Business Technology Transfer program.
  • State and local small business grants: Women’s Business Centers, Economic development association, Small Business Development Centers.
  • Private small business grants: Amber Grant, Eileen Fisher Women-Owned Business Grant
  • Other: FedEx Small Business Grant, National Association for the Self-Employed

Take advantage of Small Business Association (SBA) resources

The SBA launched the digital platform Ascent Program in January 2021 to help women entrepreneurs grow and expand their businesses. The platform provides women with content and resources to help them accomplish specific goals, including:

  • how to prepare for and recover from disasters
  • strategic marketing help
  • business financial strategy development
  • access to capital

Each goal is organized into journeys to give business owners the tools they need to grow. The platform is free to register and use.

Additional resources:

  • The U.S. Chamber of Commerce has resources for women in business available here.
  • Find local assistance from the SBA here.

Get involved in policy work

Local, state and federal government policy can change the landscape for all female entrepreneurs. You can work with other women to advocate for change for women, by women. There are many organizations that serve this purpose, but we reference two below.

  • Women Impacting Public Policy – a national nonpartisan organization that advocates on behalf of female entrepreneurs.
  • National Association of Women Business Owners (NWBO) – In addition to resources for female business owners, NWBO tracks bills and advocates on behalf of female entrepreneurs.

Work with a mentor

Working with a mentor can give female entrepreneurs access to people who’ve been in their shoes and can advise them on funding, process improvement or business strategy. Mentoring can help widen their professional networks, so they have added support as they grow. Some of the organizations we’ve previously mentioned have mentoring programs, but we will mention a few more:

  • 37 Angels
  • Astia
  • SCORE
  • Minority Business Development Agency
  • Association of Women’s Business Centers
  • Office of Women’s Business Ownership
  • The Women’s Venture Fund
  • Women Who Startup

While we detailed a few of the challenges facing female entrepreneurs, the problems extend beyond just women. There is a diversity issue in entrepreneurship. In one year, women started an average of 1,817 new businesses a day. 89 percent of those new businesses were opened by women of color. A study by Forbes found that minority business owners in general “encounter higher borrowing costs, receive smaller loans and see their loan applications rejected more often than others.”

As you can see, representation matters. We hope that we’ve encouraged you to seek out the firms and organizations that represent you and stand for diversity and inclusion. Because plain and simple, diversity is better for business.