What’s that old expression? “It takes money to make money?” Well, women may not be making as much money as men because they are not getting as much, according to Women-Owned Businesses in the 21st Century, a report by the US Department of Commerce, which found that women are more likely to self-finance and less likely to have outside investors.
In fact, the study found that women-owned firms started life with only 64% of the capital of male-owned firms and were less likely to tap outside financing over their lifetime, including loans, angel investments, and venture capital. Less start-up and growth capital means slower growth.
That finding looks right to me. Of the many multi-million dollar women entrepreneurs I’ve talked to, the vast majority have self-funded at the start and reinvested their profits in order to grow. But grow they did.
What’s blocking the way?
Their reasons for lack of outside financing vary; Some don’t ask because they are less willing to take on the risk associated with outside funding. They may be in a business that doesn’t attract outside funding or they anticipate being turned down.
- They are in businesses that aren’t attractive to venture capitalists because their returns aren’t fast or high enough. The Radius Financial Group, is now a $10 million mortgage banking company but not with the help of venture capitalists. “What gets investors interested is exponential growth,” says Sarah Valenti, president of Radius Financial Group. “They’re not going to get that in my business.”
- They don’t have strong credit, often because they start the business as they came out of a divorce. That was Dareth Colburn’s problem.
- Women put their head in the sand when it comes to doing their financials. Their numbers aren’t in order or presented well. “It’s not enough to want something, you have to prepared to receive it,” says Nina Vaca, founder of Pinnacle, which supplies contingent IT labor to Fortune 500 companies.“You have to have the balance sheet, all the number of things prepared ahead of time.” Shelly Sun CEO of BrightStar Care, has some great advice on what you need to know about finances and how to get that knowledge.
- They don’t want to lose control. As Julie Azuma says, “The reason I never looked for money, some have offered, always afraid of losing control or power. A little bit of money buys another person a lot of say in your company.” Azuma founded Different Roads to Learning, another multi-million dollar company.
- Discrimination happens still happens, as Lourdes-Martin Rosa, founder of Government Business Solutions experienced. Despite a multi-million dollar government contract in hand, she couldn’t get a $250,000 loan without her husband’s signature. I can’t believe this is still going on!
Some of these, such as reluctance to share control or the type of business you are in, are choices you made as CEO. And you can work within that framework to grow your business as Azuma and Valenti did.
Working on the others, such as knowing your numbers and making yourself attractive to investors, can make them strengths instead of obstacles. I’ll be giving you more details about ways to do that in future articles.
Discrimination is a wall we’ll just have to keep hammering until it cracks. But that’s one you may be able to go around instead of through if you are open to strategic alliances. I’ll be discussing that in the next few weeks, too.