Jan 24, 201712:22 PMOpen Mic
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7 myths busted about investing in women entrepreneurs
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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.