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.

Related Articles
  1. Entrepreneurship

    What Does Bootstrap Mean?

    The term bootstrap refers to launching and building a business with little capital and no funding from outside sources.
  2. Professionals

    Small RIAs: How to Level the Playing Field

    In order to compete with larger firms, small RIAs have to get a little creative. Here are a few ways to kickstart growth.
  3. Professionals

    What Kind of Insurance Do RIAs Need?

    Advisors spend a lot of time discussing insurance with clients but they also need to consider their own coverage needs as small-business owners
  4. Entrepreneurship

    Top 5 Startups That Emerged in Boston

    Learn why Boston is a hot market for startups, and familiarize yourself with a few of the top startups that have emerged from the city.
  5. Entrepreneurship

    Top 7 Startups That Emerged in Mexico City

    Learn why Mexico City has the potential to emerge as a major player in the startup scene, and identify several companies leading the way.
  6. Markets

    How TheSkimm Works and Makes Money

    Obtain information on the popular news digest newsletter, theSkimm, and understand how email newsletter publishers generate revenues.
  7. Professionals

    The Plusses of Second Opinions for Clients

    If you are not collaborating with other professionals in your circle, you could be doing your clients a disservice.
  8. Fundamental Analysis

    How WeWork Works and Makes Money

    Find out how WeWork makes money by offering flexible, shared office space to out-of-the-cubicle workers like freelancers and entrepreneurs.
  9. Entrepreneurship

    How to Prep Your Business for a Sale

    Once you have a clean, stand-alone business with solid finances, it's time to put a price on it. Here are the steps needed to prepare for a sale.
  10. Professionals

    Retirement Plan Options for Small-Business Owners

    Small-business owners and self-employed individuals are responsible for funding their own retirement. The SEP-IRA and solo 401(k) are tools to consider.
  1. Enterprise Investment Scheme (EIS)

    A UK program that helps smaller, riskier companies to raise capital ...
  2. Per Transaction Fees

    An expense a business must pay each time it processes a customer’s ...
  3. Operating Cost

    Expenses associated with administering a business on a day to ...
  4. Age Discrimination In Employment ...

    A federal statute protecting "certain applicants and employees" ...
  5. Cottage Industry

    A small-scale industry often operated out of a home, rather than ...
  6. Peter Pan Syndrome

    A regulatory environment in which firms prefer to stay small ...
  1. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  2. What are the benefits of financial sampling?

    Financial sampling allows auditors to approximate the rate of error within financial statements. For accounting purposes, ... Read Full Answer >>
  3. What are the responsibilities of the principal in a company?

    Principals have different roles depending on the nature of an individual business, but the universal responsibility of a ... Read Full Answer >>
  4. What do hard and soft goods in the retail sector refer to?

    Hard goods and soft goods, also referred to as hardline and softline, designate different types of goods a retailer offers. ... Read Full Answer >>
  5. What are the most common business deductions and expenses for small businesses?

    Among the most common expenses and business deductions for small businesses are the expenses of getting the business started, ... Read Full Answer >>
  6. What are the most common instances to use hire purchases in a small business?

    Hire purchases are commonly used to acquire high-dollar business assets, such as technology equipment, transportation fleets ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!