Financial Capital Remains Hurdle for Women Entrepreneurs

“Data reveal that an increasing number of women are choosing entrepreneurship as a career path, and of those, a growing number of them share aspirations for growth.”  That fact, pointed out in the preface of a new book co-written by a local university professor, is the proverbial tip of the iceberg. According to the U.S. Census Bureau, there are roughly 9.9 million women-owned firms in the United States, representing over a third of all firms in the country—and the ranks of new enterprises with women at the helm are growing rapidly. Between 2007 and 2012, women-owned firms in the U.S. grew by 27 percent compared to a growth rate of 2 percent for firms overall.

“But in spite of their impressive growth in numbers,” writes University of Hartford finance professor Susan Coleman, “the business ventures women are launching today continue to lag behind those launched by men in terms of revenues and employment. So while an increasing number of women can count themselves as entrepreneurs, many appear to be running into barriers, as the vast majority of their businesses remain quite small.”

Coleman, along with Alicia M. Robb, have co-authored The Next Wave: Financing Women’s Growth-Oriented Firms (published by Stanford University Press), which points to “three essential factors that women entrepreneurs need to thrive: knowledge, networks, and investors. In tandem, these three ingredients connect and empower emerging entrepreneurs with those who have succeeded in growing their firms while also realizing the financial and economic returns that come with doing so.”

Robb is Senior Fellow with the Ewing Marion Kauffman Foundation and Visiting Scholar at the University of California, Berkeley and the University of Colorado, Boulder. She previously worked with the Office of Economic Research in the Small Business Administration and the Federal Reserve Board of Governors. Coleman is Professor of Finance and Ansley Chair at the Barney School of Business at the University of Hartford.

Coleman notes that “A crucial pitfall is that women face unique challenges in their attempts to acquire financial capital. Growth-oriented firms typically require substantial investment—both in the form of bank loans and external equity in the form of angel or venture capital funding—to scale up.” Studies reveal, however, that “women entrepreneurs raise significantly smaller amounts of capital than men and face continued barriers in their attempts to secure external equity in particular,” Coleman points out.

In the book’s forward, the authors explain that the motives behind women-run entrepreneurial businesses vary.  “Some of these growth-oriented entrepreneurs are motivated by a desire to pursue an opportunity or an unmet need in the marketplace.  Others are frustrated by the constraints imposed by a ‘glass ceiling’ that prevents them from reaching the most senior ranks of corporations.  Still others are drawn by the financial and economic rewards that can come from leading a firm that achieves scale.”

According to IRS data, women represent over 40 percent of top wealth holders in the United States, yet estimates from the University of New Hampshire’s Center for Venture Research indicate that they represented only 25 percent of angel investors in 2015, Coleman notes.

Optimistic about the future success of women entrepreneurs, Coleman and Robb observe that “Successful women entrepreneurs who are paying it forward in a variety of ways are a driving force” in what they describe as the “next wave.”

“In a virtuous cycle, women entrepreneurs evolve from being the recipients of human, social, and financial capital into becoming the providers of those key resources as their firms grow and create economic value. The more successful women at the helm of businesses that kick off cash, the more women there are to invest in others, and the faster we see the number of women grow in the ranks of larger businesses and investing.”

In addition to appreciation expressed to the Kansas City-based Kauffman Foundation for financial support, the book’s acknowledgements note that the Barney School of Business and the University of Hartford’s Women’s Education and Leadership Fund provided grants that helped support initial research and development of case studies on women entrepreneurs. The authors also expressed appreciation to three University of Hartford graduate assistants – Ece Karhan, Mert Karhan, and Isha Sen – who “played an invaluable role in the book’s development.”