Challenges Female-Owned Companies Face

By Thursday Bram | June 12, 2012 AAA
Challenges Female-Owned Companies Face

Women-owned companies face challenges landing investors that their male-owned counterparts just don't have to deal with. It's not just anecdotal, either. A recent study at the University of Utah questioned over 200 MBA students on their opinions of fictional companies. The students were reluctant to invest in the companies owned by women, while the companies owned by men received a much more positive response in the study.

Why the Negative Response?
Is there a reason for this negative perception of women-owned companies? No one wants to point to stereotypes, but there are some statistics that show that companies owned by women are less likely to grow past $1 million in revenue. Data drawn from the 2010 U.S. Census shows that businesses whose majority owners are women make up 29% of all U.S. based companies, but only 1.8% of those women-owned companies bring in more than $1 million a year. That number has been essentially flat since 1997. Slow growth can be a good thing for a company, but it's not appealing to investors. The lack of access to investments can also create self-fulfilling prophecies about the growth of women-owned companies.

"If companies led by females are disadvantaged in their ability to raise cash through the stock market, it can impact the viability and financial health of their companies, their ability to expand and compete in an increasingly global and competitive environment, and, if they are unable to remain viable, their employees' livelihoods," noted Robert Wuebker, Leif Lundmark and Judi McLean Parks, the authors of the study.

Other Reasons
There are other factors that correlate with gender: many people suggest that women are more likely to need time away from work for family needs and point to that as a reason investors find women-owned companies less appealing. Women are more likely to be first-time entrepreneurs because of the number of women who have recently started new companies. Investors will almost always choose an entrepreneur with prior experience running a company over one without that same experience.

It's not directly an issue of gender in all cases. Jessica Livingston, a founding partner at Y Combinator, wrote on her blog that "It's been true in the past, and probably is still true to some extent, that investors discriminate against women. Not necessarily consciously, but their models of the ideal founder are current successful founders, who are mostly men."

Simply attributing the difficulties that a woman may face in interesting investors in her company to a question of whether or not those investors want to work with a woman does not address the reality that most investors don't think of themselves as holding negative views of women-owned companies. Rather, women, who may look at different fields, plan different schedules or even describe themselves differently than their male counterparts, just don't fit the mold some investors believe is necessary for a successful company.

The Bottom Line
For the most part, these factors are generalizations. There are many examples out there of women who have built fast-growing companies that offer investors an excellent return on their investment. While saying that women-owned businesses are categorically undervalued is not really correct, reluctance on the part of many investors to even consider a company owned by a woman means that there are many individual companies out there that are grossly undervalued. Companies that embrace diversity have a clear advantage and, provided that the company itself is a good investment, an investor willing to look at women-owned companies may find something truly worthwhile. There are even some investors who have actively built connections with organizations that work with women entrepreneurs to create businesses that are more appealing and less risky for investors.

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