Running A Business

The Trillion-Dollar Future of Funding Women in Small Business

Feb 19, 2020 • 10+ min read
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      The US gender pay gap is still stubborn and significant, currently paying women 85 cents for every dollar a man makes according to the latest figures from the Pew Research Center. That’s roughly where the pay gap has remained for about the last 10 years, despite years of debate on how to close the gap.

      What’s discussed less often, though, is the financial equity gender gap that leaves women with less access to business credit, holding fewer stock options, and awarded less venture capital than their male counterparts. 

      That shortfall doesn’t make women any less financially savvy. Women do more overall buying, and as Bloomberg reports, drive between 70 to 80% of consumer purchases. While women may not make all of those purchases themselves, they typically have the biggest say in household financial decisions. Women are also more adept at “making ends meet,” as they disproportionately take the role of primary caregivers of children or the elderly.

      But despite women holding 40% of the world’s wealth according to Credit Suisse, their business needs are not being met by financing institutions like banks, the financial services sector, and venture capital funding firms. These shortcomings persist even though it’s common knowledge that women are making unprecedented advances in the workforce and the ranks of executive leadership

      This problem starts at the top, and the top is not female. A CNBC study found that women occupy only 17% of senior leadership positions in the banking industry, 11% in the hedge fund sector, and 9% in the private equity field. The glass ceiling is cutting against the ability of women-owned businesses and female-founded ventures in a trickle-down bias that perpetuates a broader gender income gap. 

      “It’s still mainly a white boys club,” OneUnited Bank President Teri Williams said in an interview with Entrepreneur. “There continues to be insufficient capital for women and minorities with great ideas, but the playing field has become more level.”

      The modest change that has occurred has been fueled by the same things that fuel most voluntary changes—the sense that money is being left on the table. A report by global consulting firm Oliver Wyman estimates the financial services industry is missing out on at least $700 billion a year by failing to address the needs of women clients. 

      The Trillion-Dollar Opportunity

      That $700-billion sum is just a 1-year estimate. Morgan Stanley takes it further in a rich and dynamic dataset called “The Trillion-Dollar Blind Spot” (which also factors in potential money lost from the lack of loans to minority businesses). That report states that those 2 underfunded demographics are not being offered financial products that are “equal to traditional firms,” i.e., with white male owners or founders, and this represents “a missed opportunity of $4.4 trillion.”

      The trillion-dollar question is how to close that yawning gap. Change is indeed happening on its own, though very much at a snail’s pace. Pew Research also found that early last year, women surpassed men to make up more than half of the college-educated workforce in the US, a milestone decades in the making and unlikely to be reversed anytime soon.

      Yet the milestone comes with a frustrating footnote. As Pew points out, women surpassed men in earning those college degrees nearly 40 years ago. But women are only now catching up in workforce representation to show for those degrees. 

      We’ve unpacked some of the many institutional challenges that inhibit the success of women in small business and some possible solutions suggested by women who have nevertheless persisted when the deck was stacked against them.

      Women Business Founders Are Beating the Odds

      Women have a frankly far better track record than men at successfully starting and maintaining businesses—at least they do over the last 5 years. American Express’ 2019 State of Women-Owned Business Report showed that between 2014 and 2019, the number of US businesses owned by women increased by 21%. Meanwhile, the number of American businesses overall grew at a much slower 9%.

      That doesn’t just mean women are starting more businesses—it means that women are keeping businesses afloat at a better rate than their male counterparts.

      “As women grow more comfortable with their finances, they are more likely to continue exploring the finance industry and all it has to offer in the future either as members of the workforce or clients,” Bank of America Merrill Lynch Strategic Performance Executive Kirstin Hill told Entrepreneur. “Deeper education leads to greater representation, which results in more companies committed to women’s financial needs and advancement.”

      Access to Banking and Financial Services for Women

      The Oliver Wyman report points put that half of women whose businesses use financial services “express dissatisfaction with the gender balance of teams that serve them.” That’s a diplomatic way of saying that banks, brokerages, investment companies, and the like continue to be male-dominated workforces, and the ratio gets worse the higher one looks up the corporate ladder. 

      This lack of balance results in all manner of blind spots and biases in the finance sector toward the financial needs of women entrepreneurs. Consider retirement and wealth planning, both fields which operate under a general assumption that a client’s wealth and income will go up in consistent increments each year to form a nice, clean, upward-leaning diagonal line. 

      Those assumptions suit male clients, who are less likely to take extended family leave or change their career course for family purposes. Women do that, and also live longer, therefore incurring higher medical expenses. But retirement and wealth management plans generally do not take these very important, different needs into account.

      There’s also a common assumption in banking that women are more cautious and risk-averse with their investments. And Oliver Wyman’s data does show a tendency for women to invest more conservatively, but that’s because they tend to have a lower net worth than their male counterparts. When adjusting for net worth, the consulting firm found that “risk appetite between women and men may be comparable,” and that “observed behavioral differences do not always reflect intrinsic differences.”  

      Online lending marketplaces have leveled this playing field to some degree, as they’re more accessible to borrowers and less rife with institutional bias. “The advent of technology has helped diminish traditional, narrow practices and ways of thinking that have for a long time plagued innovation in the finance industry,” Susannah Stroud Wright, Credit Karma’s chief legal officer, explained to Entrepreneur. “Financial institutions are realizing that if they want to reach as many people as possible, they must understand a wide variety of consumers and what sets their company apart from others.” 

      Lower Business Funding for Women is a $30 Billion Lost Opportunity

      The Oliver Wyman analysis identifies several well-known financial gender gaps in business financing and projects how much more financial services firms would make if they approved women at the same rate as men. The difference amounts to tens of billions each year, possibly a hundred billion with additional factors taken into account.

      They acknowledge that women-owned businesses are less likely to get business loans and financing. But their crunched numbers show that if small and medium-sized enterprise (SME) loans were approved for women at the same rate they are for men, they would be able to create $30 billion a year in additional interest revenue. That increase would likely set off new additional revenue opportunities for banks, as these newly funded companies would grow to have other needs like credit cards and other more sophisticated financial products.

      An even greater source of untapped potential lies in commercial mortgages and business credit for women. Applying the same rates as approval afforded to male applicants, banks could pull a staggering $65 billion in new interest rate collections.

      Traditional banks are catching up on the gender lending gap, though certainly not quickly enough. 

      Venture Capital for Companies Founded by Women

      A cool but depressing tool to analyze the state of women in venture capital is the Pitchbook VC Female Founders Dashboard. It’s a collection of online charts, updated monthly, showing the percentage of women-founded companies receiving venture capital and how large a piece of the overall funding pie they’re getting. As you might expect, those percentages are sadly in the single digits.

      The current monthly statistics show that women-founded companies comprise only 5.7% of the total businesses receiving VC funding. When we look at the overall dollars, women-founded companies received only 2.1% of aggregate venture capital funding.

      Pitchbook also breaks down a separate set of numbers for companies with a mix of female and male cofounders, and women founders fare substantially better when their team has cofounding men. Companies with a mix of female and male cofounders constitute 16.6% of the businesses who’ve received funding. In terms of dollar amounts, 17.1% of that VC cash went to companies with both men and women founders.

      So having men on the founding team exponentially increases a woman’s chances of getting business venture capital, though basically increases the chances from “negligible” to “not very good.” And the more infuriating takeaway is that exclusively male-founded companies make up about 83% of those on the receiving end in the current venture capital funding landscape.  

      That Pitchbook dashboard is probably the gold standard for up-to-date information on the venture capital scene for women-founded startups, as it is updated in the first week of each month. It also has graphs showing the raw dollar amounts of venture capital flowing to women-founded companies, broken down by quarter and covering the last 10 years. At first glance, the data for the first quarter of 2020 appears to represent a terrible nosedive! But understand that the sudden decline is only a reflection of the fact that the fiscal quarter is not yet complete. There is plenty of Q1 2020 still to go.

      Women in Venture Capital Success Stories


      If you’re curious, the best quarter ever for women-founded companies was the first quarter of 2019 when they pulled $5.8 billion in those 3 months. Funding to women’s companies has fallen slightly in each quarter since. Other additional dashboard graphs, also updated monthly, show venture capital given to women by state, by major city, by industry, and by a few other granular categories for VC data enthusiasts. 

      These detailed graphs are unlikely to inspire your confidence in gender-equitable venture capital funding. But a Forbes analysis of that data looks at the bright side, noting that 2019 was the best year ever for VC funding going to women-owned companies with $17.2 billion total. Forbes also points to a Crunchbase report showing that 2019 was the best year for women-founded “unicorns,” the trendy tech term for startups that have achieved a billion-dollar valuation. A record 21 companies founded by women achieved that valuation last year, representing 15% of 2019’s new members of unicorn row.

      Those female-founded all-stars include Airwallex, ezCater, FabFitFun, Glossier, Hims, The RealReal, Rent The Runway, and Scale

      Some of those startups received rounds of funding of up to $100 million, which may be a little more than your business is seeking. Lendio’s online startup loans are available in sums as little as $500 and as much as $750,000, and you can have that funding in a manner of weeks.

      Women Leaders in Venture Capital

      Getting funded is great, but the real power lies with the billion-dollar venture capital firms that give out all that funding. As you might expect, women VCs are more likely to fund other women’s businesses and startups. It’s just that there are far fewer women in those billion-dollar investment ranks. For perspective, consider how the Forbes 2019 list of the world’s billionaires contained 224 women—out of 2,153 billionaires overall.

      In the venture capital game, only 9% of leading investors are women. But some very powerful female investors are starting firms and funds whose specific purpose is to provide big-dollar capital to the most promising women-owned businesses and startups. 

      Quartz reports on some of these female-founded venture capital firms creating funding opportunities for high-value investors. A digital investment platform called Ellevest, founded by one-time Wall Street executive Sallie Krawcheck, has introduced Intentional Impact Portfolios that offer “private wealth clients” opportunities to invest in women-owned companies that promote equal pay. The more traditional VC firm Portfolia is actually less traditional in the sense that its “investment funds designed for women” emphasize funding for businesses started by LGBTQ women and women of color.

      Of course, Ellevest is in New York City, and Portfolia is in Silicon Valley. You may need startup funding a little closer to home. But the broader implications of financially empowering women can trickle down past the big American financial centers.

      Women Executives and Boards of Directors

      The lack of women in executive positions also extends to large companies’ board of directors positions, as shareholders remain hesitant to elect women to boards. A just-released study from Crunchbase and the Harvard Business Review found that women hold only 7% of board-level positions at “elite private firms.” The problem is worse than it sounds, as about 60% of the companies in their sample had no women on their board of directors.

      Change is definitely coming in that area, though. Bloomberg reports that the investment firm Goldman Sachs, the largest underwriter of US stock market initial public offerings (IPOs), won’t underwrite those IPOs unless there’s at least one “diverse” member on the company’s board of directors. 

      That mandate applies to women, though it also includes people of color. While Goldman Sachs is the only investment bank that’s gone so far as to refuse the business of companies with all-male boards, other high-profile investment bankers like BlackRock, Inc. and the Vanguard Group have also made it a policy of using their institutional influence to force the election of women and people of color to corporate boards.

      “It’s what big investors are looking for these days,” Boston University management professor Fred Foulkes told Bloomberg. “If the board has all white males, that’s a big negative.”

      Similar board of directors diversity laws are already on the books in France, Germany, and Italy, and the state of California also passed a law requiring gender diversity on corporate boards.

      All across the United States, there are nearly 13 million women-owned businesses. This stat is more than a feel-good story—it’s a large part of the current economic growth driving historically low unemployment rates. Employment at women-owned businesses has grown by 8% over the last 5 years, whereas for all businesses in general, that growth rate is just 1.8%. Plenty of barriers remain in women’s way, but employment growth like that shows that female entrepreneurs are the right ones for the job.

      About the author
      Joe Kukura

      Joe Kukura is a San Francisco freelance writer whose work also appears in SF Weekly and SFist. He’s written financial advice for NerdWallet, tech industry analysis for the Daily Dot, sports content for NBC Bay Area, and good, old-fashioned clickbait for Thrillist.

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