It has long been apparent that, when it comes to business, there is a gap in the funding available for female entrepreneurs and women-led enterprises. In 2017, a report found that all-male teams were four times more likely to secure finance than groups that included women. Following more recent research, there are fears the gap has widened further as women struggle to secure funding in the post-pandemic market.
In the modern world, where it is easy to assume everyone has equal opportunities, many may ask why women are not getting access to the funding they require. It has been argued that there are simply more men applying for finance; however, this still leaves the question open as to why women are deterred from starting their own companies.
In reality, more female entrepreneurs are pursuing their business ambitions in the post-coronavirus landscape. With the funding market now containing more options than ever before, it seems only fair that those receiving funding should be equally diverse – so why is this not happening?
In this blog, we examine the reasons why women may struggle to get business funding and what can be done to break down the barriers facing entrepreneurs.
- A lack of female entrepreneurs
- A lack of female investors
- Negative experiences
- Why the balance needs to be readdressed
A lack of female entrepreneurs
One of the more simplistic arguments as to why men receive business funding more often than women is that females aren’t applying for finance. Unfortunately, it is true that men outnumber women when it comes to starting a business.
The idea of lacking female entrepreneurs is a vicious cycle for many reasons. Firstly, fewer women owning businesses results in a lack of success stories for their peers to look to – meaning that other women are less likely to be inspired and believe that they too can run businesses. However, the tide is changing here, as more women step forward as business and finance role models.
Secondly, a lack of female-led businesses seeking funding could result in some of the funding resistance they experience when seeking investment. A study has found evidence that women are rejected for finance in instances where the investors have deemed them ‘unable to fit into industry’. This suggests that when women attempt to break into male-dominated sectors with their venture, it creates more challenging obstacles in securing funding for it. And, with women struggling to get the financial backing they need, this could act as a deterrent for future female-owned businesses.
Having more women in every industry would no doubt ease the concerns investors may feel when lending to a female in a male-dominated area, as well as encourage fellow women to follow suit. However, it is essential to look into the reasons why women do not start their own businesses, and the role finance may play in that.
A lack of female investors
When you are looking to finance a start-up idea, you will often need substantial capital to allow you to cover all your bases and set-up your new business. Due to the sums involved, equity investment is often the best solution for start-ups, if not the only solution, offering large sums of money in exchange for shares that will grow in value over time and result in substantial profits for the investor.
Securing the investment often means winning over companies and individuals with a strong business idea, robust plan and compelling pitch. However, what counts as an excellent investment opportunity may vary depending on the experience and interests of the investor you are pitching to, as well as their ability to understand the value of your idea.
It is, therefore, no surprise that one of the leading reasons that women cite for the difficulty in securing investment is a lack of female investors. Research in 2018 found that only 14% of angel investors were women, with a report in 2019 finding that only 23% of women held an investment product (compared to 35% of men).
The reasons for the lack of female investors likely coincide with those causing fewer female entrepreneurs: a lack of confidence and caution to risk. However, without their perspective in the funding market, it becomes more challenging for other women to get the finance they need – particularly if their start-up idea is more suited to a female market that male investors may find harder to understand.
It is worth noting that, despite the reduced rate of funding given to women, company valuations tend to be higher when a woman is on the team – suggesting there is no performance-based issue that may lead to this investment gap.
What is apparent from the data is that more women are needed in investor networks to give female entrepreneurs a better chance of attracting the funding they need for their business idea. This would not only boost the chances of women already seeking finance, but also encourage those who are not to follow suit.
The positive news is that female investment is on the increase. In 2020, women signing up to online investment platforms reached record levels, and overall numbers of female angel investors have steadily increased over the year. With the trend moving upwards, it is hoped this could correlate with a narrowing of the gap between female and male business funding – though there is still some way to go.
Negative experiences
Another commonly given reason that women do not actively seek funding is due to negative experiences they have faced previously. With many obstacles already described, such as a lack of similarly minded investors and male-dominated industries, it’s not hard to see why.
Due to the previous rejection for finance, many women may be put off seeking support altogether. An EY survey found that one-fifth of female business owners had no intention of raising capital, suggesting many may be missing out on external financing that can enable the growth and success of their enterprises.
This lack of desire to seek funding, whatever the reason may be, can also cut women out of funding networks and limits their presence in financial circles. This, in turn, reduces their access to opportunities and mentoring, making it harder for them to meet potential investors.
As attitudes change regarding women and funding, with more entrepreneurs and investors coming to the table, it is hoped that the negative experiences faced will decrease, encouraging more women to apply for and benefit from financial support.
Why the balance needs to be readdressed
Regardless of the reasons behind why women struggle to obtain business funding, readdressing the balance and narrowing the gap can only be a good thing. By offering female entrepreneurs enhanced opportunities, funders will be able to create a level-playing field for all applicants and encourage higher take-up from women.
However, it isn’t just women who benefit from equal opportunities: it’s their funders too. There is a wealth of research that has demonstrated the value of women in business, but one of the most attractive statistics is that women-led companies tend to take more revenue than those led by men. This means that by investing in such businesses, investors are more likely to generate larger returns.
So, by increasing the funding opportunities for women, more businesses can enjoy success across a range of sectors, while investors can enjoy a better return on investment and the funding market as a whole receive more demand. It also means that business ideas that fill a gap in the market are more likely to be backed, where they may have previously been rejected. The economy benefits – good news for everybody!
Get advice
At Pegasus Funding, we aim to provide financial advice that supports every entrepreneur and every business idea. Our team of advisors have experience working across a plethora of industries and funding challenges, allowing us to offer bespoke guidance tailored to your requirements.
We also have access to an extensive network of investors and other funding sources, helping us to find the perfect solution for you and assist in your mission to secure finance.