Moving Away from Self-Funding

Most women entrepreneurs rely on their own savings and loans to finance their firms’ growth instead of tapping into venture capital. This panel explored the demand and supply side changes that are occurring in financing high growth women entrepreneurs, what needs to be done to achieve gender parity in this space and what role commercial banks can or should play.

Key Points

• Most entrepreneurs, regardless of male or female ownership, self fund. However, women in general receive a lower proportion of funding, regardless of its type. On the demand side, just 11% of women-owned businesses even seek venture funding.
• There are particular challenges to high-growth businesses as whole, in terms of how they get identified, accelerated, and funded. There is a significant potential for women-run businesses that could be high growth but are not because they are not getting the right support.
• There is evidence that women’s businesses grow at a faster rate. The reason for this is not clear, whether it is that they start smaller as they lack equity capital or due to other reasons. It is an important area for banks to consider as they grow and graduate to bank funding.
• Debt funding of early stage high-growth businesses cannot be seen as a replacement of equity, but as a complement.
• Banks can play an important role in this space as a partner and trusted advisor, bringing different stakeholders in the community and funding partners to high-growth businesses. Banks are generally not in the business of lending to high-growth businesses, as their interest rates are lower and are priced based on lower risk. This is complicated by the perennial debate around supply and demand: banks say they have plenty to lend but nobody to borrow, while consumers say banks are not lending.
• A bigger issue might be the lack of funding to medium-growth businesses, as these represented a larger portion of the total businesses.
• There is a lack of women in leadership positions: women hold 5% of c-level positions and 16% of public board seats in the US, and have been paid 30% less than our male peers. As a result, a minority of funders are actually women. Only 4% of the senior partners at VC funds (who can actually make an investment) are women. Today women are about 20% of the angel market in the US, and it is believed that the rise of the female angel has been a big factor in the increase in women-led funding.
• Crowdfunding is a great alternate opportunity for increasing access for women.
• Fear of failure is a particular challenge that high-growth women businesses tend to have, especially in LAC. There is a stigma around making mistakes and taking risks, and women in LAC in particular are afraid to take risks.
• Lack of education and networking are also a common problem. In LAC, less women are likely to study abroad, and are therefore not able to make as strong networks as their male peers. In addition, women tend to maintain networks of family and friends, while men are expanding them.
• Confidence building programs are key for high-growth women businesses.
• Accelerators that provide mentoring and role models for women have been proven to have a significant impact on the growth of businesses. There must be a constant reinforcement of the different kinds of activities. Networks become a key aspect in linking women who may have had similar experiences.
• Bankers should be aware of unconscious bias, and try to avoid engraining statements like women are risk averse. Women have different financial behaviors and it is important to understand them and not nform our thinking of how a women-owned business might perform.