Funding for women-led businesses lags behind those started by men

A joint study by BCG, a consulting firm, and MassChallenge, a global startup accelerator with offices in Texas, highlights the funding imbalance. Companies founded or cofounded by women pulled in an average investment of $935,000 nationwide compared with the average $2.1 million invested in companies founded by male entrepreneurs.

Harvard Business Review notes that women-led startups netted just 2.3 percent of all venture capital funding in 2020, down from a record-high of 2.8 percent the previous year. Though both percentages are small in the overall scheme of things, the recent decline came after years of steady growth.

Recent investment data shows another alarming trend: Global venture capital funding for women-led startups dropped 27 percent from 2019 to 2020, according to research by Crunchbase. Some of the decrease in funding can be attributed to shifting priorities and duties during the pandemic. A 2020 McKinsey report found that up to 30 percent of working mothers were considering leaving the workforceExternal Link: undefined completely.

Texas is well-positioned for growth in women-led business ventures, however, according to Merchant Maverick, a comparison site that writes about small-business software and services.

It recently put the state at No. 6 on its list of top states for women-led startupsExternal Link: undefined and No. 5 for having the most employees working at companies run by women (20.1 percent).

Center for Women Entrepreneurs

The state took a big step in encouraging women’s business ownership when the 2015 Legislature created the Center for Women Entrepreneurs at Texas Woman’s University in Denton.

The center offers business advising, networking events, training, and funding through small-business grants.

Tracy Irby, director for the center, said there definitely is a demand for financial help to get women-led ventures off the ground.

“We just closed our StartHER grant, which we do every fall,” Irby said. “We have always given 10 grants for $5,000 each, and we upped it this year to 25 grants and got over 320 applications.”

During the pandemic, the center also awarded AssistHER grants (100 grants for $10,000 each) to women affected by COVID. “Part of the reason we did that is because many women who have a business are the sole breadwinners for the family. If they aren’t making money in their business, it’s affecting a whole family unit.”

Businesses started by women tend to focus on a social or community cause, and they tend to seek less of an investment compared with male-led ventures.

“Women are more cautious,” said Irby. “Even in our incubator program, we had a woman with a tech business, and someone told her ‘You need to ask for $1 million,’ when she was thinking $100,000, and it really threw her that someone would say that. Women don’t realize how much they can or should ask for.”

Contributing factors for disparities in funding might reflect broader socioeconomic and social disparities, including investor biases, or that women tend to request less funding than their male counterparts.

The Center for Women Entrepreneurs’ monthly Women Rise speaker series touches on funding, and its StartHER program includes education and training for ideation or early startups. Program leaders talk to participants about funding, how to prepare for funding, and options for finding investments.

“Access to capital is one of the biggest issues they [women] face, not just venture capital but capital of any kind for a startup,” Irby said.

Most venture capital pitches in Texas occur in the major population centers: Austin, Dallas, Houston, and San Antonio. The Center for Women Entrepreneurs is making strides to expand its brand of assistance to the entire state.

“We are making specific efforts in other parts of Texas, like Amarillo, Lubbock, and border areas that haven’t heard about our grant programs. The need for capital is especially high in rural areas. Our recent grant application numbers have [shown] increased numbers throughout the state.”

Though efforts to help women better prepare for creating and finding funding for their own businesses are increasing, the low investment overall misses a big opportunity, according to the Harvard study. Women-led businesses have a greater return on the dollar compared with companies run by men. And businesses started and run by women hire 2.5 times more women than do companies run by men. And more employment opportunities for women can boost the bottom line for Texas families.

“There are more people offering funding specific for women now,” Irby said. “Veteran women, minority women, etc. And all of that should help with the growth of their businesses. It should help create more sales tax revenue, create more jobs. And it helps their communities.”

The 2018 Comptroller’s report Women in the Workforce includes research (PDF) that shows a 146.1 percent increase in women-owned businesses in Texas from 1997 to 2017. To keep that momentum, venture capital firms and other lenders must realize the value of women-led startups and small businesses and invest accordingly. With greater access to capital across industries, women entrepreneurs can build their own businesses and Texas’ bottom line.

Source: Texas Comptroller