Yesterday's post looked at what it takes for women to get into the top positions at large firms, but another way for women to get into leadership roles in business it to start their own companies. With start-ups increasingly popular among younger adults who find that traditional firms don't offer the clear paths for advancement and success that they once did, the idea of starting a new company can be both appealing to women, and present a whole additional set of challenges.
Every new business has trouble securing funding, at least initially. The simplest way to fund a new company is by obtaining a loan, yet women-led businesses receive only 4.4% of all small business loans, even though they represent 30% of all new small businesses in the United States. Alternatively, new businesses can seek out venture capital (VC) funding, but women in general receive only about 7% of all VC investment money. This trend is even more pronounced for minority women; black women receive only 0.2% of all VC funding, even though minority women are the fastest-growing group of entrepreneurs in the United States.
And when women do receive funding, either through loans or VC investors, they often receive less than their male counterparts. The average loan for a women-led business is around $57,000, compared to an average of $103,000 for male entrepreneurs. The industry-wide average for a new project helmed by an all-male team that receives VC funding is $10.9 million. Women-led projects average $4.5 million, a number which plummets to an average of only $36,000 for projects led by black women. By comparison, the average VC funding raised by an all-male team that ultimately fails is $1.3 million.
The lack of adequate outside funding can stop a project from getting off the ground at all, or seriously stymie its ability to grow organically. Estimates usually put initial start-up costs for prototypes and testing at around $10-50,000, followed by another $100-500,000 in pre-seed funding to show that the concept is viable. When projects led by women - particularly black women - are under-funded, they may not be able to even test their ideas in the marketplace, a necessary step in securing additional rounds of funding, and finding a market for their business.
The Other Side of Capital Accessibility
This problem of capital accessibility is one of the first and biggest challenges encountered by female entrepreneurs. One possible upside to this problem is that it forces women entrepreneurs to be even more innovative in their marketing strategies, and more strategic with their use of what funding they do receive - both qualities that should attract any serious investor. With so many women wanting to start their own companies, and so few banks and VC investors already funding them, there is a largely untapped market of talent waiting to be nurtured.