7 myths busted about investing in women entrepreneurs
Over the years, women have gained much ground in business leadership. In the U.S. and many developed countries, women constitute half of the workforce. Thirty percent of small businesses in the U.S. are run by women, employing over 7.9 million people who together generated $1.4 trillion in sales in 2015.
Women are continually vying for top political posts as seen in the U.S., UK, and Germany. Globally, people are realizing that women are better in business than their male counterparts. This realization is fueling the increase in funding for women entrepreneurs. However, there are concerns over the motivation behind the push for more funding to women.
For most venture capitalists, the bottom line is always to make profit and grow the business. However, these are not always the reasons why investors fund women entrepreneurs. Investors finance women entrepreneurs for the wrong reasons when their focus shifts from the business to something else. Here are the top seven incorrect reasons to invest in women entrepreneurs:
1. Women are not strong enough
A study released by First Round Capital shows that companies with a female founder perform 63% better than an all-male team. However, for a long time, women have been viewed as weak and incapable of getting much done. As such, men have dominated the business environment while women play a supporting role. This perspective makes the now-growing influence of women in the world today seem to stem from pity. Thinking that women are not capable of handling the startup landscape is a faulty foundation for financing women entrepreneurs. It not only limits the amount of funding that women can access, but also reduces the chances of investors receiving meaningful returns.
2. Intention to takeover women business
An investor can be impressed by a business idea and not the entrepreneur. Since the startup scene can be brutal, most venture capitalists want to earn money as quickly as possible. Some opt to realize this goal by finding businesses with growth potential and funding them with the intention of taking over the business or replacing the entrepreneur entirely. Financing women entrepreneurs with the intention of taking over their business is a wrong reason for investing in women entrepreneurs.
3. Family members’ involvement in the business
Most entrepreneurs, whether men or women, seek financing from family members and friends first. However, women tend to shy away from approaching conventional sources of funding more than men and their main source of capital tends to be their husbands, parents, or friends. While these sources may have the interest of the entrepreneur at heart, they do not necessarily share in the vision for the business. This makes it challenging for the entrepreneurs to grow their businesses when the financiers do not fully understand the vision of the business because their involvement is limited. As a result, the financiers invest less, considering the effort required.
4. Gender pay gap
We know that women in the business world are paid less compared to their male counterparts. In the U.S., it is said that for every dollar men are paid for work, women are only paid 60 cents. This worrying statistic means that women employees are considered a more lucrative option for business owners. They cost less while contributing a lot to the business. Investors therefore opt to give funding to women entrepreneurs based on the thinking that they employ more women employees who are cheaper, thereby increasing business profits.
5. To support women empowerment
The idea of supporting women has grown stronger over the past decade due to global women empowerment campaigns. This has been an important step toward giving women an equal footing in business and leadership like their male counterparts. However, support toward women entrepreneurs should be motivated by the potential and ability they have to run a successful business as opposed to the idea of just empowering them.
6. Women entrepreneurs are easily exploited
The perception that women trust easily makes them an easy target for investors who want to exploit them. As such, investing in women entrepreneurs with the intention of manipulating business deals is the wrong motivation for investors because manipulated deals put women entrepreneurs in a position that’s far worse than when they started.
7. Women entrepreneurs are not willing to take risks
There are investors who prefer investing in female entrepreneurs to lower their financial risks. This thinking is driven by the perception that women prefer to avoid risks. While women are widely viewed as risk averse, this thinking can also mean they are better suited to manage a company’s resources while still providing enough bravado to grow those businesses to full potential. Starting and growing a business requires a certain level of risk. When no risks are taken the business likely remains static or dies altogether. This quality is only attractive to investors whose motivation to invest in women is not to see their businesses grow, but to keep their money safe.
David Drake is the chairman of LDJ Capital, a multifamily office with holdings in Victoria Partners, a 500-family office network based in London, LDJ Real Estate Group, and The Soho Loft Media Group. www.thesoholoft.com / www.ldjcapital.com
Mr. Drake is a serial entrepreneur and business expert in technology, media, telecoms, realty, hospitality, cleantech, energy, and social impact investments for more than 20 years. He is an advocate of innovative investing in private equity, capital formation policies, and developments globally, and the U.S. JOBS Act, which he lobbied for in the U.S. Congress and the EU Commission. He represented the U.S. Commerce Department at the EU Commission in Brussels and Rome in 2012 and was invited to the White House Champions of Change ceremony in Washington, D.C. and as a speaker at the UK Parliament in 2013.
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