NCPA - National Center for Policy Analysis

Lack of Start-up Funds for Women Hurts Economy

August 16, 2001

Women create 70 percent of jobs at privately run companies and own 26 percent of all companies, yet receive only 4.4 percent of venture capital (VC). Thousands of female entrepreneurs face the same problem every year -- a situation with disastrous potential for the U.S. economy. VentureOne, a major research group, has only tracked gender-specific data since 1997 but reports the percentage of VC going to women-owned firms remained level while overall VC funding soared. Experts blame the limited VC for women-owned businesses on four basic factors:

  • Educational Ghettos -- Women are less likely to start companies in fast-growing industries, like technology, because they often lack relevant backgrounds -- in fact, about 72 percent of women-owned companies are in the service sector versus 57 percent of all firms.
  • Financial Frat Houses -- Women make up only 5 percent of partners at the nation's top 40 VC firms and know fewer entrepreneurs -- the people most likely to refer business deals to venture capitalists.
  • Conservative Forecasting -- Women entrepreneurs tend to be more conservative than men when forecasting revenue, and VC firms often make matters worse by cutting revenue projections in half.
  • Soccer Mom Syndrome -- Venture capitalists may be more reluctant because they worry women will have children and leave, but many women start their own businesses so they can better control their schedules and spend more time with their kids.

The slowing economy has caused VC investments to plummet 50 percent in the last year, putting even more pressure on start-ups by women. Few blame the problem, however, on pure discrimination. Venture capitalists often ask three questions to determine whom they support: Are they credible? Can they defend their business case? And have they done it before? The last requirement is where most women fall short.

Source: Jim Hopkins, "A Woman's Work is Rarely Funded: Female-led Start-Ups Get Only a Fraction of Venture Capital Funds," USA Today, August 15, 2001.

 

Browse more articles on Economic Issues