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Study shows women owned firms lagging in venture capital financing

Boston University : 06 March, 2000  (Technical Article)
A team of academics who study women and entrepreneurship have found that although women start up 40 percent of the businesses in the U.S., they only receive four percent of venture capital financing.
Boston University School of Management Associate Professor Candida Brush and colleagues believe several factors are at the root of this phenomenon, including the types of businesses women typically run, women’s management styles, and the 'old boys’ network.'

Only a generation ago women who wanted a checkbook needed their husbands to co-sign the account. Between 1987 and 1999, however, the number of female-owned firms in the U.S. increased by 103 percent. Most of these new ventures are in the service and retail sectors, which may be part of the problem, according to Brush, because these industries lack the high-tech glamour that attracts venture capital.

This preliminary study will be followed up through the four month-long Diana Project, named for the Roman goddess of the hunt, which is the first comprehensive investigation of the relationship between gender and equity capital. Brush and co-investigators from Harvard, St. Thomas University, Indiana University, and University of Missouri are analyzing databases of venture capital investments since 1952 to determine whether factors such as educational backgrounds, lack of role models, and technology experience affects women’s venture capital funding.

In their examination of 29 venture capital studies, Brush and colleagues found significant gender differences in both the kinds of companies that have to date received venture funding and in the different types of investment men- and women-owned firms receive. The slow-growing retail and service sectors are typically overlooked by venture capital firms, which seek a rapid return on their investment.

The researchers believe there are three possible reasons for the lack of and differences in funding. 'The VC network is tightly connected and male-dominated,' she says. 'Women and men have different organizational values, which may make women’s ventures seem less legitimate.'

They also believe women may be less willing to give up control of their company to a venture capital firm, which typically expects as much as 75 percent ownership of a business. This, they note, clashes with women’s organizational styles, which tend to be favor strategic expansion rather than the uncertainties of rapid growth.

'The VC community is missing tremendous opportunities,' Brush says. 'Between 1995 and 1998 twenty percent of IPOs were owned or managed by women, yet only two percent of them had VC funding. Perhaps the venture capital industry needs to change, or it may be that women must change their attitudes about taking on the big investors.'
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