A single mother walks into a bank hoping to get a loan for the small business she wants to start as a caregiver. Her business will add value to her community, but she doesn’t have enough collateral to secure the loan. The projected returns in her business plan also don’t meet the bank’s requirements. She walks out without the financing she needs.
This would-be entrepreneur’s story is far from unique. The challenge of securing startup—and even scale-up—capital is the reality for many women across the United States and, even more so, in other parts of the world. Despite progress toward gender equity in areas such as health outcomes, employment, and education, the World Bank estimated in 2017 that the global finance gap for women entrepreneurs was $1.7 trillion annually. Nearly a decade later, this funding gap remains. But why is this the case for a population that could meaningfully contribute to stronger local economies?
A SYSTEM NOT DESIGNED FOR WOMEN
The funding gap is by no means a measure of women’s entrepreneurial potential. Rather, it often shines light on the structural barriers they face when launching and growing a business. These can include impediments to securing the kinds of financial products that best meet their needs and limited networks that facilitate access to capital, mentorship, and markets.
Yet recent research suggests that women business owners use capital efficiently. In fact, the latest MAD Ventures research points out that women-founded startups generate 78 cents of revenue for every dollar raised, in contrast to 31 cents for startups founded by men.
Women-owned businesses can also generate broad economic ripple effects throughout their local communities. For example, these businesses can help drive job creation, including for other women, and studies show that women reinvest up to 90% of their earnings back into families and communities through greater household spending on children, education, nutrition, and health.
Opening pathways to capital for women entrepreneurs can therefore translate into income for those they hire and spur positive economic impacts that we sometimes fail to recognize. Women-built businesses benefit families, communities, and local economies, perhaps even more so in developing countries. Yet we often overlook or ignore the significant ways that women entrepreneurs’ value-add goes beyond revenues and profits.
This reveals fallacies in how financial institutions define and assess “value.” Traditional investment practices can fail to consider the multiple ways in which these businesses make a difference in the lives of the women who start them and those they employ, in addition to the communities in which they operate.
PHILANTHROPY’S ROLE
Philanthropy can play a critical role in supporting women entrepreneurs who remain underserved by the investment landscape. In addition to supporting access to capital, philanthropy can fund the capacity-building support these business owners need to strategically start, scale, and sustain activities over time. For example, the Cherie Blair Foundation for Women (an organization we support) recognizes that closing the gender gap in entrepreneurship requires more than capital alone. Through programs focused on financial readiness, business growth, leadership, and one-to-one mentoring, the nonprofit helps women entrepreneurs build the skills and establish the networks they need to succeed.
Business also has a clear role to play. The United Nations Global Compact calls on the private sector to expand women’s access to capital, markets, and leadership opportunities. It also strives to provide the evidence, systems insights, and practical tools necessary to integrate women-led businesses into global supply chains and financial ecosystems.
It is important to recognize that women entrepreneurs do not experience barriers in the same ways. As cofounder and CEO of The Acceleration Project (TAP), which provides free programs, mentorship, and guidance to small businesses, Jane Vernon told me in a recent conversation that “small business programs are largely designed for entrepreneurs who don’t carry all of the additional pressures facing women. This is particularly stark for single mothers, who must balance business with caregiving, household income responsibility, time scarcity, and limited access to flexible work.” To better understand these barriers and how to address them, the Ares Charitable Foundation supports TAP to test solutions specifically tailored to meet the needs of women business owners who are raising children on their own.
ADD IN THE PRIVATE SECTOR
Unfortunately, the odds were already stacked against the woman who walked into the bank hoping for a loan to launch her caregiving business. Institutions do not typically think about specific circumstances of this aspiring entrepreneur and others like her. While philanthropy can and should help catalyze change, lasting progress will require bringing the private sector to the table to reimagine the supports women need if we expect them to continue holding up half the sky. Only then can women entrepreneurs thrive, and businesses, communities, and economies can realize the significant returns that come from investing in them.
Michelle Armstrong is president of the Ares Charitable Foundation.