Entrepreneurship Policies through a Gender Lens

United States

By Susan Coleman, University of Hartford

Background

Although women-owned firms represent an estimated 40% of all small and medium-sized enterprises in the United States, access to financial capital remains a significant challenge for many women entrepreneurs (NWBC, 2018a). On average, women entrepreneurs launch their firms with smaller amounts of financial capital than men, and are more reliant on internal sources of financing (Coleman and Robb, 2016; Henry et al., 2017; OECD, 2017a). The gender gap in access to finance is particularly wide in the area of external equity, which is typically supplied by angel and venture capital investors and used to support growth-oriented businesses. This gap is caused by supply and demand-side barriers. Supply-side barriers include investor preferences for industries with the greatest growth potential (e.g. high-tech and STEM sectors), where women are even more under-represented, a lack of women investors and the significance of male-dominated networks (Henry et al., 2017). Demand-side barriers include, on average, higher levels of risk aversion and lower levels of entrepreneurial self-confidence (OECD/EU, 2017b). The combined effects of supply and demand side constraints result in lower levels of external finance at start-up and in subsequent stages of business development (Coleman and Robb, 2016). This has implications for their firms’ ability to survive, innovate, create jobs and most importantly, to grow.

Growth-oriented entrepreneurship is a policy priority in the United States due to its potential for job creation and the development and commercialisation of innovative products and services. Growth-oriented ventures also have the potential to generate significant tax revenues at the national, state and local levels. A report published by the Ewing Marion Kauffman Foundation found, however, that women are dramatically under-represented in growth-oriented entrepreneurship (Mitchell, 2011). Despite these gaps, successful women entrepreneurs are increasingly recognised not only as leaders in their industry, but also as thought leaders and role models in our society.

Policy issue: Access to financial capital

Although women represent nearly 40% of the top wealth holders in the United States, they accounted for only 19.5% of angel investors in 2017 (Sohl, 2018). This under-representation of women within networks of angel investors represents another hurdle for women entrepreneurs, since male investors are more likely to invest in firms launched by men rather than those launched by women. Women also tend to be less confident, on average, in their financial and investing skills, which likely increases their reluctance to become angel investors. In response to these challenges, evaluation evidence shows that angel investor training programmes for women that combine education, hands-on investing, and the creation of a mutually supportive network can lead to gains in knowledge, confidence and willingness to invest in women-owned enterprises (Coleman and Robb, 2018).

Only 2.7% of firms that received venture capital funding between 2011 and 2013 had a woman CEO (Brush et al., 2014). Correspondingly, companies with a woman CEO received only 3% of total venture capital investment during this period. Moreover, the number of women partners in venture capital firms declined from 10% in 1999 to 6% in 2013 (Brush et al., 2014). Significantly, 34% of venture capital firms with a woman partner invested in companies with a woman on the management team compared to 13% of firms without a woman partner. These observations underscore the need to increase the number of women investors and decision-makers in both angel investing and venture capital.

In 2012, the U.S. Congress passed the Jumpstart Our Business Startups Act (JOBS Act) to support and encourage entrepreneurship and small business growth in the wake of the financial crisis. Among other measures, the JOBS Act opened the door to equity crowdfunding and the emergence of a growing number of crowdfunding platforms. Preliminary results suggest that crowdfunding may be particularly beneficial to women entrepreneurs. A recent study of women entrepreneurs participating in Kickstarter campaigns revealed that, although women set lower funding goals, they were 9 percent more likely to achieve their goals in both men-dominated and women-dominated categories (NWBC, 2018b, pp.13). Given that Kickstarter applies an “all or nothing” funding rule, this means that a higher percentage of women get funded relative to those that apply. Early successes such as these highlight the potential for developing women-focused or women-friendly crowdfunding platforms as a means for increasing the supply of financial capital available to women entrepreneurs.

Conclusions and recommendations

Women are significantly less likely than men to launch growth-oriented firms in the United States. One of the primary barriers cited to women’s growth-oriented entrepreneurship is lack of access to financial capital, particularly equity capital in the form of angel and venture capital. Recent research suggests that reshaping the entrepreneurial ecosystem by increasing the number of women angel and venture capital investors is a means for increasing the amount of equity capital available to growth-oriented women entrepreneurs. Similarly, the emergence and growth of crowdfunding, further stimulated by the 2012 JOBS Act, provides opportunities for new sources of financing for both growth-oriented and non-growth-oriented women-owned firms. Based on the United States experience, the following recommendations are offered for policy makers seeking to improve access to financial capital for growth-oriented women entrepreneurs.

Recommendations for the United States

• Develop women-focused business angel training programmes, networks and funds that combine education and training in the principles of angel investing with hands-on investing experience under the direction of experienced angel investors.

• Increase the number of women venture capitalists in decision-making roles by encouraging the venture capital industry to recruit, train, develop and retain women in leadership positions.

• Develop the potential of crowdfunding to increase the supply of external financial capital to all women entrepreneurs, including those who aspire to grow their businesses.

References

Brush, C. G., P. G. Green, L. Balachandra and A. Davis (2014), Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital; Executive Summary, Arthur M. Blank Center for Entrepreneurship, Babson College, Babson Park, MA, www.babson.edu/.../diana-project-executive-summary-2014.pdf.

Coleman, S. and A. Robb (2018), Executive forum: Linking women’s growth-oriented entrepreneurship policy and practice: Results from the Rising Tide Angel Training Program, Venture Capital, Vol. 20, No. 2, pp. 211-231.

Coleman, S. and A. Robb (2016), Financing high-growth women-owned enterprises: Evidence from the United States in C. Díaz-García, C. Brush, E. Gatewood and F. Welter (eds.), Women’s Entrepreneurship in Global and Local Contexts, Edward Elgar Publishing, Cheltenham, UK and Northampton, MA, USA: pp. 183-202.

Henry, C., B. J. Orser, S. Coleman, L. Foss and F. Welter (2017), Women's entrepreneurship policy: A 13 nation cross-country comparison, International Journal of Gender and Entrepreneurship, Vol. 9, No. 3, pp. 206-228.

Mitchell, L. (2011, September), Overcoming the Gender Gap: Women Entrepreneurs as Economic Drivers, Ewing Marion Kauffman Foundation, Kansas City, MO, http://www.kauffman.org.

NWBC (2018a), National Women’s Business Council 2018 Annual Report, National Women’s Business Council, Washington D.C., https://www.nwbc.gov/2018/12/21/annual-report-2018/.

NWBC (2018b), Crowdfunding as a Capital Source of Women Entrepreneurs: Case Study of Kickstarter, a Reward-Based Crowdfunding Platform, National Women’s Business Council, Washington D.C., https://www.nwbc.gov/2018/03/27/crowdfunding-as-a-capital-source-for-women-entrepreneurs-2/.

OECD (2017a), The Pursuit of Gender Equality: An Uphill Battle, OECD Publishing, Paris, https://doi.org/10.1787/9789264281318-en.

OECD/EU (2017b), The Missing Entrepreneurs 2017: Policies for Inclusive Entrepreneurship, OECD Publishing, Paris, https://doi.org/10.1787/9789264283602-en.

Sohl, J. (2018), The Angel Market in 2017: Angels Remain Bullish for Seed and Start-Up Investing, Center for Venture Research, University of New Hampshire, Durham, New Hampshire, https://paulcollege.unh.edu/sites/default/files/resource/files/2017-analysis-report.pdf.