Non-compete agreements, which deter workers from starting or joining a competing company, could be discouraging more women than men from starting businesses, according to a recent report by Matt Marx, the Bruce F. Failing Sr. Chair in Entrepreneurship at Cornell University.
Looking at workers from 25 states and Washington D.C. from 1990 to 2014, Marx found that women in states with stricter non-compete laws were less likely to leave their employer to start a rival startup than men.
Starting a business in the same industry after signing a non-compete agreement raises the business’ risk– the former employer could sue, which could lead to costly legal expenses and scare away potential hires. Women are more likely to avoid risk than men, Marx notes, pointing to several studies that show this.
Women are also more likely to face punishment for breaking the rules, according to the report. However, he also found that law firms do not specifically target women in non-compete lawsuits, Marx found.
Businesses are more likely to succeed when founders and employees have relevant experience, Marx writes. But women who signed non-competes are more discouraged than men from digging into their professional networks to hire workers for their startups. This hinders their business’ growth potential, according to the report.
Businesses with most potential blocked
“This is the really sad thing,” Marx said in Cornell’s news release. “You look at women who start businesses nonetheless, despite the risk. The companies that get blocked are not the companies that would have failed anyway; they’re the high-potential, high-risk companies. And that’s the real tragedy: The non-competes are actually blocking women from starting the kind of companies that we care about most, the high-growth companies, and that’s why they’re making the gender gap worse. That’s the real point of the study.”
Women already face more barriers than men while building businesses. Namely, they face large funding disparities — solo women raised the smallest portion of VC funding in five years this year — for the first eight months of 2021, startups run only by women raised just 2.2% of all venture capital. For companies run by men and women, the percentage has been flat at about 12% for the last few years.
READ MORE: Of Megadeals and Men: Has the U.S. Venture Capital Industry Peaked?
Meanwhile, research indicates that women-led companies tend to outperform male-led companies, according to the Harvard Business Review. If women and men around the world participated equally as entrepreneurs, global GDP could rise by 3% to 6%, which would boost the economy by $2.5 trillion, according to a 2019 report from Boston Consulting Group.
Not to mention that white men now make up the minority in business owners — which is due, in large part, to businesses owned by women, as well as other underrepresented groups, such as Latinx and Black founders.
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