Fewer Funds for Women Entrepreneurs

Can ladies lunch their way to investment?

Women entrepreneurs receive less funding than men. According to Biz2Credit, small business loan approval rates are 15-20% lower for women than they are for men. Additionally, research has shown that women-led businesses consistently receive less venture capital funding than their male counterparts, partly because venture capital firms tend to rely on their established networks, which are predominately male. The fact is: fewer women entrepreneurs receive investment then men. There are indications that this trend holds true in Chicago as well.  Consider, for example, the fact that none of the 19 companies in Chicago that raised over one million in funding last quarter were founded by women.

Professor Ellen Rudnick, Executive Director of the University of Chicago Polsky Center for Entrepreneurship, and Board Member at Hyde Park Angels, is not surprised that women receive less venture capital then men.

“Venture capitalists primarily look for companies that have the ability to scale and build substantial enterprises,” says Rudnick. “While there are a few women who are trying to build these types of enterprises, there are many more women who are building ‘lifestyle’ businesses which are of less interest to venture capitalists.”

Rudnick says women may find a solution to this problem in angel investment and, when looking for investors, Rudnick says it’s important to build and push your network to get access to resources — not just money but also potential services, vendors, and customers.

Networking to success is one of the ideas behind Ms. Tech, a Chicago-based community for women in technology or business. Ms. Tech runs a ‘mastermind lunch’ at 1871 to help women build better networks. If you’re a women in technology who is interested in business, Ms. Tech is one way to meet like-minded individuals.

Lisa Russell, co-founder of Ms. Tech, says a strong network can raise an entrepreneur’s profile and lead to funding.

“You want the angel or VC groups to be able to see that you have mutual connections, to be able to ask around about you and to learn about your previous experiences before you’re even sitting in front of them,” says Russell.

The City of Chicago Technology Plan, released in September, 2013, outlines other solutions for women in business. The Plan, which contains 28 initiatives for integrating technology and improving business and employment in Chicago, includes a commitment to diversity and “ensuring that women and minorities have access to the opportunities technology affords.”

A Tech Diversity Council was convened to develop strategies for the Technology Plan that will increase the percentage of minority employees at technology firms, increase the percentage of minority owned and operated firms, and create a pipeline for Chicago Public Schools and City Colleges of Chicago students to enter the technology sector.

The Diversity Council only reached conclusions on students, however.  The team, composed mostly of Chicago-based entrepreneurs, made recommendations like adding computer science to the core curriculum, providing 1:1 tablet or computer access to Chicago Public Schools students, and summer learning opportunities in technology.

Technical education in high school isn’t the only barrier to entry when it comes entrepreneurship, however. Access to capital, networks, and procurement contracts are other barriers that women face in owning and operating businesses.

Emilia DiMenco, CEO of the Women’s Business Development Center (WBDC) sees barriers between women and capital as well.

“Although outcomes have improved over the last 30 years, the number of contracts and loans going to women are still less than what the opportunity is,” says DiMenco.

Qualifying for bank debt is a focus at the Women’s Business Development Center as is securing government contracts. DiMenco wants to see more investment in women-owned businesses, regardless whether they are in the technology sector.  Her colleague Frieda Curry, Director of the Illinois Procurement Technical Assistance Center at the WBDC, says women need stronger political power.

“More of my clients are service oriented than not,” says Curry. “These contracts tend to be smaller and its still difficult for women to access income. We need stronger political power to make that happen.”

So there are several theories on why women-led businesses receive less venture capital funding and fewer small business loans then men. Perhaps women are starting more “lifestyle businesses,” or, businesses that women want to run without selling equity to venture capitalists or pivoting to meet a VC firm’s demands. Or maybe women are starting more service-oriented businesses then men are and banks are less interested in taking on their company’s risk.

In any case, women entrepreneurs receive fewer funds then men, and our financial system is failing to fully meet their demand. ❒

[Photo: Members of Ms. Tech network at the weekly “Ladies Who Lunch” on Wednesdays at 1871. Photo by Nicole Yeary courtesy of Ms. Tech.]

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