Op-Ed: The Real Reason Women Entrepreneurs Struggle to Raise Funding

Something interesting happened at last October’s 2020 Women in Global Development Leadership Forum, dedicated to empowering women leaders on the global stage. Before a panel discussion on “The Many Ways to Invest in Women Entrepreneurs,” a Zoom chat poll asked participants, What is your biggest challenge? Overwhelmingly, the answer was ‘funding’—raising enough of it or raising any at all.

After the panel discussion and breakout groups, a second poll asked the same question. This time, the answers were starkly different. They revolved around insufficient networks for women entrepreneurs seeking funding, lack of confidence in asking for funding, and recognition that their more modest and realistic approach to fundraising often clashes with the predominant investor culture.

What happened in the span of 30 minutes to trigger such a shift in answers? While talking among themselves, these women leaders began to dig into the ‘why’ behind the larger questions around funding inequity—looking below the visible surface of the funding landscape to get to the systemic root causes of why the funding ecosystem undervalues women entrepreneurs.

One thing is for sure: the answer isn’t for women entrepreneurs to change themselves to fit into the expectations of the existing funding environment, which is merely the visible manifestation of long-standing biases and ways of working. Rather, women leaders need to navigate their own paths to success: planting and cultivating new seeds—forming new networks and ecosystems—while also pressing for change at the hidden levels of the larger ecosystem.

Women Entrepreneurs Face Significant Headwinds

Worldwide, women are underrepresented as business owners and executives. When starting their own businesses, women receive less funding than their male counterparts.

According to analysis by Boston Consulting Group (BCG) of data from the MassChallenge accelerator network, investments in companies founded or cofounded by women averaged $935,000, compared to the average of $2.1 million invested in companies founded by men. And in 40% of economies worldwide, women’s early-stage entrepreneurial activity is half or less than half of that of men’s.

And Yet, Women’s Leadership Achieves Superior Results

In reality, businesses founded by women deliver more than twice as much per dollar invested than those founded by men.

When companies have higher percentages of women in leadership and board positions, they average better returns on sales, assets and equity compared to those with the lowest percentages of women in leadership and board positions. A January 2019 Forbes article cited studies showing that women-founded companies outperformed companies founded by men, including delivering higher revenues, stronger growth, less employee turnover, and greater return on equity.

Empowering women economically goes beyond the success of individual businesses, too; it is a global good. If women and men participated equally as entrepreneurs, global GDP could rise by approximately 3% to 6%, boosting the global economy by $2.5 trillion to $5 trillion.

Exposing the Roots of Women Entrepreneurs’ Funding Challenges

What’s going on here? If women entrepreneurs perform so well, why do they continue to face serious challenges obtaining the capital they need? What’s at the root of gender-based funding disparities?

In a couple of publications, BCG identifies some reasons for gender disparity in funding, including:

• Women have relatively limited access to the kinds of robust support networks that have long nurtured startups founded by men.
• “Men often overpitch and oversell,” while women tend to give more conservative projections and might ask potential investors for less funding than men.
• When pitching their businesses to investors, women founders receive more challenges and pushback than men.

At Miller Center for Social Entrepreneurship, we’ve witnessed time and again both the challenges that women social entrepreneurs face and their ability to succeed, despite the odds stacked against them. Here are three examples that illustrate BCG’s points above.

Manka Angwafo is the founder of Grassland Cameroon, a premier grain-handling company in North-West Cameroon that works closely with smallholder farmers to improve the lives of the farmers, their families, and their communities at large.

Of her challenges starting her company and securing funding, Manka has said: “Initially I had only male advisors to look up to, and male counterparts to work with.” She advises women leaders to “seek out other female founders, regardless of their business sector. Create a tribe of unfailing supporters, and hold them close to you. This is what will keep you going through all the tough times.”

Allison Archambault is President of EarthSpark International, which delivers microgrids and other small-scale clean energy products to hard-to-reach places, starting with Haiti. According to Allison: “My biggest reflection on the gender funding gap is the degree to which overpromising is rewarded. I have a sense that women tend to be more candid about their ventures, but candid conversations about uncertainty and risk don’t sell.”

Erica Plybeah Hemphill is CEO and founder of MedHaul, the end-to-end platform that helps healthcare providers find and book safe, transportation for people with special needs, beginning in Memphis, Tennessee. Erica faces the extra challenge of being a Black woman in the United States, considering that Black women have raised only 0.0006% of the $424.7 billion total tech venture funding since 2009.

In the early stages of launching MedHaul, Erica struggled to raise funding—despite exceeding the metrics that investors said she needed to meet. She said: “[Potential investors] would say, get one letter of intent, I would get four. They said, get one paid pilot, I got two paid pilots. We overperformed on their expectations and still never got funding.”

Growing Strong, Successful Women Leaders

It’s one thing to celebrate women leaders who rise against the odds, but we shouldn’t expect them to carry the full burden of growing their own success. The prevailing narrative is that women need to adapt what they do, and how they do it, to achieve their goals. But decades of trying that approach have barely moved the stats.

Instead, it’s the system itself that needs to change, starting at the roots. Yes, women leaders must work to support and boost one another, but everyone has a role to play.

For example, investors can consider a gender lens investing strategy, taking into account how well their investment decisions support women’s economic and social well-being. And as more women step up to become investors, their male colleagues can embrace and encourage them.

Social entrepreneurship is an important part of the solution, as well. Social enterprises empower women economically not only as leaders, but also in the other important dimensions: as employees, value chain participants, and customers.

We all have a stake in women’s economic empowerment. We should seize any opportunity to encourage women to take leadership roles—then support them once they get there.