Why Women Entrepreneurs Are Underrated Investments -- And What To Do About It

Why Women Entrepreneurs Are Underrated Investments -- And What To Do About It
This post was published on the now-closed HuffPost Contributor platform. Contributors control their own work and posted freely to our site. If you need to flag this entry as abusive, send us an email.

The White House State of Women Summit was an awe-inspiring gathering of more than 5,000 leaders in business, politics, and social justice activism all working to reduce barriers to women's opportunity. I had the the privilege of joining a panel of women representing nonprofit organizations, investment firms, financial technology companies and more to discuss how to expand women's access to capital. While we are all working to address this issue in different ways, we can all agree on the fact that women entrepreneurs are great investments - and that more people need to realize it.

Companies with gender and ethnic diversity on their leadership teams perform better than their peers in the field, and the companies represented at the conference were a testament to this fact. Nina Vaca, CEO of The Pinnacle Group, noted that 64 percent of the critical decision makers in her company are women. "When you allow women to unleash their leadership potential, they're going to deliver," she said. The Pinnacle Group, which earns more than $650 million in annual revenues, is 100 percent women and minority-owned. Melanie Whelan, CEO of SoulCycle, attributed much of her company's success to the fact that 86 percent of its leadership team is made up of women. Soul Cycle expanded its total revenue from $36.2 million in 2012 to $112.0 million in 2014.

Nevertheless, women-owned and minority-owned firms continue to receive a disproportionally low share of financing to start their businesses. Just 14 percent of SBA-backed loan dollars went to women-owned businesses in 2016 and 30 percent went to minority-owned businesses as of June 10. The numbers are even worse for venture capital. Only 2.7 percent of venture capital-funded companies had a woman CEO between 2011 and 2013. A 2010 study found that 13 percent of venture-capital backed firms were minority owned.

Leaders in the financial inclusion space can help close this financing gap by recognizing the factors that contribute to it, and the solutions that are helping to narrow it.

Adjust for credit score disparities
Accion's data reflects what we see nationally and globally - that women generally have lower credit scores than men, but they also have higher repayment rates. What's behind this discrepancy? One reason is the wage gap - U.S. women earn 79 cents for every dollar men earn, and this gap is even greater for women of color. That translates to women having less available credit and debt, both factors that influence credit score. Organizations providing capital need to adjust their risk model to account for this disparity. At Accion, our investments in entrepreneurs aren't made according to a simple algorithm. We have found that women are determined to make a difference in their lives, their families, and their communities - and this determination contributes to the success of their businesses.

Combat the effects of "pattern recognition"
Kelly Williams, President of GCM Grosvenor, highlighted the concept of "pattern recognition," which leads investors to gravitate toward ventures that are similar to those they funded in the past. This tendency can be damaging, especially given that only 6 percent of venture capital decision makers are women. One way to combat this effect is to improve the diversity of investment teams. Venture capital firms with women partners are more than twice as likely to back companies with women executives. Crowdfunding sites are also promising equalizers of investment opportunity - a greater percentage of women-led ventures are successfully funded through these platforms than male-led ventures, especially among technology startups. Debbie Sterling, whose company GoldieBlox was funded through Kickstarter, noted that crowdfunding sites are particularly valuable for women entrepreneurs because they provide an opportunity to prove there is demand for a product. And given that women control 64 percent of global spending and 73 percent of U.S. spending, it makes sense that women are the best suited to understand what products will do well.

Value humility
A study by UNC and Penn business schools found that women's humility led to them founding 23.2% fewer ventures in their sample than they would have if they were as "immodest and overconfident" as men. Sallie Krawcheck, chair of the Ellevate Network and CEO and Co-Founder Ellevest, noted that investors should take this disparity into account when evaluating the potential of women-owned companies. "The numbers will lead you to where the crowd isn't," she said. In fact, at Accion we see this humility as a positive predictor of performance. We've found that borrowers who proactively identify weaknesses in their applications have better repayment rates.

Support social entrepreneurs
Kavita Ramdas, Senior Advisor at the Ford Foundation, noted that women are particularly effective in developing ventures that provide societal benefits. One in two social entrepreneurs globally are women, compared to one in three commercial entrepreneurs. Investors should take a closer look at for-benefit ventures, she said, because "the real capital that's going to make a change is human capital."

Popular in the Community


What's Hot