In 2018, U.S. businesses owned by women represented 40 percent of all enterprises, employed 9.2 million people and generated $1.8 trillion in revenue. Add to that the fact that women make up 43 percent of the nation’s top wealth — controlling more than half of it ($14 trillion) — and it probably seems like financial equity has come a long way.
The number of U.S. businesses owned by women in 2018
Not so fast. While it’s true that women’s financial outlook is brightening, women are still being paid only 78 cents for every dollar men earn. Women-owned businesses have it particularly tough, considering the problems they face in seeking venture capital to achieve significant growth.
Melinda Gates agrees. Gates is longtime co-chair of the Bill & Melinda Gates Foundation and, since 2016, philanthropist and investor at Pivotal Ventures — a Seattle-based venture capital company that invests in female- and minority-led businesses. “In 2017, which was a representative year, women received only 2 percent of venture capital funding,” she says. A recent U.S. Senate Committee on Small Business and Entrepreneurship study confirms it: Women receive only a small fraction of investor and venture capital funding, and women-led businesses comprised only 4.9 percent of venture capital deals. According to the report, “Women entrepreneurs face persistent institutional barriers that make achieving financial parity a serious challenge with lasting consequences.” Gates finds the hard truth in the data when she adds, “If you have a smart idea that you want to turn into a successful business, it helps to have funding. And if you’re looking for funding, the data suggests it helps to be a man.”
The amount women received of venture capital funding in 2017, which was a representative year
Human nature is partly to blame. As the U.S. Senate committee report illustrates, investors fund what they know — so when an investor doesn’t understand or can’t relate to a business idea, the chance of that person putting dollars toward it is relatively small. Women represent just 8 percent of the investing partners at the top 100 venture firms globally, so the decision makers for the majority of requests are male. However, when there are female partners in a venture capital firm, the chances that the firm invests in companies with a woman on the management team are doubled. They’re tripled for a company with a female CEO.
Despite the funding inequity, the reality of risk for a venture capitalist may actually be less when investing in a woman-led business. For example, the trading platform Quantopian conducted a study that placed the performance of women-led Fortune 1000 companies against the male-dominated S&P 500’s performance between 2002 and 2014. The results showed that the 80 women CEOs outperformed their S&P 500 counterparts by 226 percent.
The Changing Face of Business
When women have an equal chance of getting the financial backing they need to bring their best ideas to life, we’re going to see a new generation of products, services and companies that are going to fill unmet needs, close market gaps and better serve consumers.
Women are a powerful financial force in U.S. business, but, as the Senate committee report shows, the gender pay gap and unequal access to funding and financing leave women with few credit options and a small portion of venture capital to make a strong impact. As U.S. businesses continue to innovate, it will be even more vital to include more women in technologies such as artificial intelligence so that women’s perspectives are also represented. But with the under-representation of women in the hubs where these technologies are built, there’s a long road ahead. “Venture capitalists glorify disruptive innovation, but they keep expecting it to come from the same place,” Gates says. “It’s time we realize that the next Bill Gates probably isn’t going to look anything like the last one.”
With the vast gender disparity on display in venture capital firms as well as places such as Silicon Valley and Wall Street, experts like Gates warn that, unless venture capital firms move quickly to include everyone at the table, they will miss significant opportunities. Women are responsible for 86 percent of all household purchasing decisions, they note, so firms that don’t get on board to fund women-led companies and businesses that sell products aimed at women will be left behind.
Gates believes that investing in women is just better for business, too. “When women have an equal chance of getting the financial backing they need to bring their best ideas to life, we’re going to see a new generation of products, services and companies that are going to fill unmet needs, close market gaps and better serve consumers,” she says. “I think there’s a reason to be optimistic that more diversity at the top levels of business will also help create a better, more inclusive corporate culture.”