Why Do Women Entrepreneurs Receive Less Funding?

GW School of Business alumna’s documentary explores the disparity in funding for male and female entrepreneurs.

July 6, 2015

Shark Tank

"The Road to the Shark Tank" is a new documentary produced by George Washington University School of Business alumna Sharon Brown. It will explore the disparity in funding opportunities for male and female entrepreneurs.

By Brittney Dunkins

There’s an old story in the world of entrepreneurship, according to Kathy Korman Frey, founder of the Hot Mommas Project, a global database of case studies written primarily by women entrepreneurs.

A venture capital investor receives two identical applications, both with a unique idea, outstanding numbers, a clear business plan and feasible return-on-investment.

The singular difference between them is the names on the projects—a woman proposes one plan and a man proposes the other.

“This is a well-known phenomenon shown in research,” said Ms. Frey, the 13-year entrepreneur-in-residence at the George Washington University Center of Entrepreneurial Excellence. “When a man and woman turn in the exact same application to a venture capital firm, the male name is received more favorably.”

“There is a funding gender gap, but the question is whether this is a conscious thing or an unconscious thing. The right attitude is to say, what can we do to solve it.”

GW School of Business alumna Sharon Brown, M.S.P.M. ’12, will tackle the why behind the gap in a new independent documentary, “The Road to the Shark Tank.”

The documentary will be produced under the umbrella of the eLuminate Entrepreneur Network, founded by Ms. Brown in 2007.

Ms. Brown said that while preparing entrepreneurs to grow their businesses, she heard stories of how statistics on the differences in funding between genders —such as those reported by Babson College—play out in the real world.

“Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital,” a study produced by Babson College’s Diana Project, found that 85 percent of venture capital-funded businesses do not have women on the executive team.   

Women are CEOs of only 2.7 percent of venture capital-funded companies, the study reports.

“The numbers are pretty staggering but I think people have a limited perspective on the issue,” Ms. Brown said. “The documentary is going to explore what’s behind those numbers and what the possible solutions are.”

Ms. Brown said that uncovering the “key drivers” is the first step in identifying possible solutions.

“There is only so much an entrepreneur can do without resources,” Ms. Brown said. “A significant lack of access to capital is a barrier to success.”  

Early stage investment in startups with women on the executive team has tripled in the past 15 years—up to 15 percent from 5 percent— according to the Babson study.

That increase is thanks in part to organizations that focus on preparing women to seek funding, according to Amy Millman, founder of Springboard Enterprises.

Located on the Mount Vernon Campus, Springboard Enterprises offers coaching, mentoring and networking opportunities to connect women-owned, technology-focused ventures with equity capital.

In the 1990s, Ms. Millman was the executive director of the National Women’s Business Council, a federal government commission focused on access to capital for women business owners.

“We would talk to bankers, and they would say, ‘we would love to lend to women, but are not sure they are creditworthy’” Ms. Millman said. “So we thought, let’s provide the data to show that women are bankable and then teach women to put together the right documents, speak the language of bankers and use numbers to tell the story of the business.”

That mission was translated to her work with Springboard Enterprises, which has helped more that 580 women entrepreneurs raise more than  $6.6 billion in capital for their companies.

Carol Nacy was an early participant in Springboard Enterprises. There, she learned to translate her experience as a career scientist and manager at the Walter Reed Army Institute of Research into a value proposition for investors.

A veteran of the industry, she shepherded drug company EntreMed, Inc. to a successful initial public offering in 1996, and in 1997 she co-founded Sequella, Inc., which develops drugs to combat infectious diseases.  

“Science is my art, but you don’t pitch by talking science, so I had to learn to communicate market opportunity and do it quickly, ” Dr. Nacy said. “It takes a certain amount of risk to be successful in business.” 

That risk, is amplified for women, Dr. Nacy said, because they are often pitching to a “boys’ club.”  She said that she is still constantly amazed to walk into a boardroom and see only one or two women and 30 men.

“Men dominated the startup industry early on, and venture capitalists are more willing to fund entrepreneurs who have launched a business and failed than someone new to the industry,” Dr. Nacy said. “We need more women on both sides of the equation, as venture capitalists and entrepreneurs.”

Organizations, such as Golden Seeds, have helped to move the needle by providing connections to venture capital funds, a vast network of angel investors and Knowledge Institute training for prospective entrepreneurs.

Startup competitions for women-run business are also gaining traction because they provide a broader networking platform for women entrepreneurs and prospective investors.

Women Who Tech, an organization that advocates for women in STEM-focused startups hosted the first Women Startup Challenge Pitch Competition June 30, awarding more than $315,000 in capital to women-run ventures.

“You have to learn to speak the language of investors, no one is born knowing that,” Ms. Millman said. “That’s how I look at this, everyone—not just women—needs an agent to get access.”

That hypothesis is born out by the Babson study, which found that when women are part of a venture capital firm, they are more than twice as likely to invest in women-owned businesses.

Ms. Frey said that mentorship in the women’s leadership community is pivotal in coaching inexperienced women entrepreneurs into the “next level of risk” required to get funding.

“I’ve been asked to be a part of an angel venture capital group and coach entrepreneurs, and I’ve said, ‘I’ll do it if you agree that 25 percent of the companies that are brought in are women-owned,’” Ms. Frey said.

“We desperately need that pipeline—women with million dollar-plus experience, with venture capital experience— pulling other women up,” Ms. Frey said. “Let’s provide as much access and opportunities as possible, because then, we’ll know the problem isn’t access, it’s something else.”