The Gender Gap Exists Within Entrepreneurship Too
By: Sarah Patterson
Tags: Wage Gap, Gender Bias, Discrimination, Funding Round, Venture Capital

The Gender Gap Exists Within Entrepreneurship Too

Photo by Brooke Lark on Unsplash

The wage gap and gender bias have been a highly publicised topic in the media and politics in recent years. In 2019, women earned 79 cents for every dollar earned by men in the U.S. This ratio is partly the result of women holding fewer senior responsibilities and lower-paying roles in sectors dominated by women. Nonetheless, the discrimination is real — even with equal pay legislation, some women are still paid less for the same job than their male counterparts. This gender gap exists within entrepreneurship too. Small business loan applications by women are rejected more frequently.

In 2018, the average loan size for women-owned businesses was 31% less than that of men-owned businesses.

In 2009, Jennifer Freitas walked into a bank to secure a loan for her clean beauty business. At 29 years old, with no debt and enough money in her account to secure the loan, she was in a better financial position than most of her peers. She was denied. Another bank would only approve her application if her dad co-signed the loan.

Self-funding has become more of a necessity for women. It is unsurprising that almost 63% of women-owned businesses were funded using the founder’s savings.

The bias does not stop after building a successful business. Gail Goodman, the founder and CEO of Constant Contact took her company public and sold it for $1.1 billion in 2015. She put the struggle of pitching her business down to her inexperience. When she embarked on her next venture, Pepperlane — a business that helps moms start home-based businesses — Gail was a proven entrepreneur. Nonetheless, she was met with the same resistance she experienced as a younger business owner.

Women are held to higher standards than men during the pitching process due to the misconception that they are riskier investments.

Only 2.3% of funds from VC sources were invested in women-owned businesses in 2019. This statistic is often regarded as the result that women are more risk-averse than men and hence less likely to apply for funding. However, the effect is compounded by the fact that only 14% of investment partners at Venture Capitalist firms are women. Bias becomes more obvious in the VC funding process during the vetting phase: women are asked questions about the potential for failure whilst men are asked about the potential for success.

The reality is that motherhood is seen as a negative to an investor. Being a parent and CEO can be an asset. Founders bring more empathy and run employee-based organisations with more compassion. They provide family benefits despite the high cost for small businesses. However, these traits aren’t seen by an investor who instead wants to hear you’re going to work 80 hours a week with no other priorities.

The discrimination against women is compounded by racial discrimination. Black women represent the highest rate of growth over any other group. Yet, only 0.0006% of VC funding went to Black women founders between 2009 and 2017. In the same period, only 0.32% went to Latin American women founders. In 2019, 1.1 million businesses were owned by Asian women in the U.S. but only 6% of investors in VC firms are Asian women.

The men vs. women issue is changing incrementally in the entrepreneurial space thanks to the growing number of women CEOs and VC investors. Women supporting women will help close this gap. Angel investment groups, such as Broadway Angels, comprised entirely of women help eliminate gender bias in the VC funding process. Nonetheless, it is estimated that it will take nearly a century to close this gender gap.