A Gender Gap in Startup Funding

What do women want? For starters, greater access to venture capital, according to a new survey

Companies run by women aren’t getting their fair share of venture funding, according to the Diana Project, a new study sponsored by the Kansas City (Mo.)-based Kauffman Center for Entrepreneurial Leadership.

By Mica Schneider in New York Business Week Online

In 2000, venture capitalists distributed about $73 billion, but less than 4.9% of that sum went to companies led by women, according Venture One, a venture-capital research firm in Silicon Valley cited in the study. Even allowing for the fact that men run more companies than women, such a low percentage distressed the researchers. "If women are left out, without access to grow their capital, the U.S. may be missing out on some top-notch, innovative businesses," says Associate Professor Candida Brush, director of the Council for Women’s Entrepreneurship and Leadership at Boston University’s School of Management and one of the study’s five leaders.

BROAD HORIZONS. Women play an increasing role in the U.S. economy — they own or co-own 35% to 40% of all U.S. businesses — but misconceptions about their business savvy restrict access to equity capital, the Diana Project found. One enduring myth is that women generally lack the educational credentials to start businesses. The figures say otherwise: Among the 941 female entrepreneurs that the group examined, 49% have graduate degrees. Of those, 18% have MBAs.

Another stereotype insists that women prefer running hobby-related ventures to high-growth businesses. Yet half of the 101 women presenting business plans at venture-capital forums estimated their target markets to be in excess of $15 billion.

Another frequent explanation for the inability of women to attract a larger volume of venture funding is that they simply don’t apply for it — even though some VC outfits now focus exclusively on women-owned businesses. Just one of those funds, The Women’s Growth Capital Fund, receives about 1,000 business plans annually from women seeking venture capital, the study found.

THINK AGAIN. The researchers — all university women from across the U.S. — turned to academic journals, venture capitalists, and female entrepreneurs to gather data and impressions on how equity providers perceive women. If nothing else, the researchers hope to prompt academics to analyze businesses founded by women. Presently, just 10% to 15% of academic research on entrepreneurship includes an examination of women-owned businesses.

Aside from knocking down traditional explanations for why women don’t get more venture capital, the Diana Project doesn’t offer a definitive conclusion. More study is needed, the researchers say, explaining that they plan to resume their research in 2002. If they succeed, venture capitalists may eventually get the idea that women belong in the business world, too.

http://www.businessweek.com/smallbiz/content/dec2001/sb20011214_3179.htm