Women Mean Business

WOMEN MEAN BUSINESS: How Opportunities to Invest in Women-Owned Companies Can Revolutionize the Investment World

Investing in women-owned businesses is too risky, and the returns are too low.

At least, that’s how the not-so-innovative world of business financing has looked at female entrepreneurs – for decades.

As recently as 2014, studies have shown that investment pitches from men are more successful than those from women – even when the content of the pitch is identical.  It’s assumed that women-owned businesses don’t grow as fast, or that women are too distracted by other parts of their lives, such as their families, to focus on growing a business.

But actual statistics have proven every one of these assumptions to the contrary.  It’s a fact that businesses with majority female ownership report the highest instance of average yearly revenue growth of more than 20 per cent.  And, companies with strong female leadership generate higher returns on equity, create a 60% higher return on invested capital, grow faster, and produce higher net profit margins.

So, the long-held belief that women-owned businesses don’t do as well is a myth.  But with just 2.7% of venture funding going to women CEO’s, has anything really changed?

A Brief History of Women and Entrepreneurship

Fifty years ago, most women whose husbands were the breadwinners knew little to nothing about the state of their own household’s financial affairs.  It comes as no surprise, then, that many women had no financial knowledge or education to help them make personal financial decisions, let alone assess the risk of starting a business.

But as women emerged into the business world over the next several decades, it quickly became apparent that not only were women perfectly capable of starting and operating successful businesses, they were actually better at it than many of their male counterparts, despite being considered risk averse.

Take Freda Diamond, whose design business became one of the most respected household furnishing consultancies in the world by the 1960’s.  Or Brownie Wise, whose Tupperware empire practically invented the party plan business model.  History is chock full of examples of women creating innovation in business.

Still, women struggle to access financing for their businesses and many of them go it alone, trying to bootstrap their way to profitability with extremely limited resources. This only adds to the perception that women can’t grow successful companies.  According to Shelly Lynn Nellis, Entrepreneur and Partner in Project Her Inc. (Canada’s first crowdfunding platform built specifically for women entrepreneurs), too many women try to self-finance their company’s growth when they could do so much more with external financing.  But they either don’t ask for the money, or they are turned down because their business models or products, which often involve “female-focused products” like skin care, children’s retail, or women’s health solutions, don’t fit the traditional profile of a high-growth company.

According to a recent BMO-sponsored study called A Force to Reckon With: Women, Entrepreneurship and Risk, women tend to prefer building sustainable businesses over high-growth ventures with a potentially shorter (or largely uncertain) life span.  The conventional assumption that “greater risk leads to greater rewards” can’t be applied as generally to women entrepreneurs, who tend to assess risk from a more holistic perspective.

Vicki Saunders, Founder, SheEO

Women look at not only the financial risk of a business decision, but at social or family risk, reputational and social risk, and other potential consequences beyond just losing money.  They understand that rewards are not only monetary – they can be community-based, family-based or simply involve making an important contribution to the greater good of society.  If a business decision has the potential to make many people’s lives better – and yes, make money too – the rewards add up to a lot more than just piles of dollar bills.

Is Crowdfunding the Answer?

Crowdfunding has already flipped the script on traditional perceptions of investment risk and disrupted the venture capital landscape by showing that regular people are willing to take collective financial risk not just to support a business, but especially to support one that has a positive impact on many people.

Rewards-based crowdfunding and the emerging equity crowdfunding options are often ideal for entrepreneurs who consider both risk and rewards from more than just a financial perspective.  And for women with companies that don’t fit the traditional high-growth investment model, crowdfunding has finally made business financing accessible.  For example, children’s playwear company Peekaboo Beans recently completed an equity crowdfunding offering, setting the stage for founder Tracy Costa to take her company public.

Nellis says crowdfunding helps women see that it’s possible to access business financing outside of traditional sources.  As an added bonus, crowdfunding allows entrepreneurs to build powerful communities of loyal customers who become brand ambassadors and avidly promote the businesses they’ve helped fund.  Initiatives like Project Her and SheEO are starting to demonstrate how powerful collective financing can be for women-owned businesses.

[Editor’s Note:  Read our PowHERhouse Portrait featuring Vicki Saunders of SheEO here.]

Chief Growth Officer at FrontFundr

A New Chapter for Business Financing

It’s not just women entrepreneurs who are making waves – there are many new initiatives for women investors too.  Female Funders teaches women about business investing from both sides – educating entrepreneurs about how investment financing works, and showing women how they can get involved in helping start-ups grow by funding companies themselves.  And the Vinetta Project, with chapters in Vancouver and Toronto, is working to bring more business education and financing opportunities to women with high-growth companies.

Fortunately, both men and women are stepping up to drive inclusion and make sure female entrepreneurs can access business financing too.  Jill Earthy, Chief Growth Officer at FrontFundr, is excited about how the world of business investment is changing, adding that men are eager to come along for the journey because they see how big the opportunities are to invest in women-owned businesses.  She says that women entrepreneurs are becoming more aware of how they can raise capital, and that there is plenty of capital available – it’s about helping women overcome the challenge of finding the right fit.

With women being the world’s biggest emerging market, initiatives that make business financing accessible for more women entrepreneurs will open up investment opportunities with the potential for higher than average returns, higher than average growth rates, and higher than average profits.  

That’s a dream scenario for a Venture Capitalist.  And it’s a big reason why women are poised to disrupt the world of business finance in the best way possible.

References: 

2.7% stat: https://www.femalefunders.com/about/

https://www.msci.com/documents/10199/04b6f646-d638-4878-9c61-4eb91748a82b

https://carleton.ca/cwppl/wp-content/uploads/A_Force_To_Reckon_With_EN.pdf

BMO Women in Leadership Fund Overview, accessible from http://www.bmo.com/gam/ca/investor/products/mutual-funds/product?fundId=37646

http://www.canadianbusiness.com/leadership/women-in-vc/

Self-financing: http://www.forbes.com/sites/groupthink/2015/10/02/whats-gender-bias-got-to-do-with-it-almost-everything-for-women-seeking-venture-funding/2/#1fa671b05bef