How Boosting Female Entrepreneurship will Fuel Economic Growth
February 19, 2015 | Focus on Women
By Lisa Wirthman
Want to fuel economic growth? Support female entrepreneurs.
Encouraging more women-led startups can have as much positive impact on U.S. economic growth as the entry of women into the labor force during the 20th century, according to a November 2014 report by the Kauffman Foundation, Sources of Economic Hope: Women’s Entrepreneurship.
As more women entered the workforce over the last several decades and began to outpace men in college degrees, they created huge economic gains for the U.S. economy. But many economists now say the 3 percent annual economic growth provided by these trends has slowed, and they estimate a long-term drop to 2 percent growth in years to come, according to the Kaufmann report.
To boost growth, women may once again provide the answer. Although a third of U.S. businesses are women owned, they tend to have less revenue and fewer employees. Women also account for less than 10 percent of founders of the high-growth firms. The silver lining is that women’s severe under-representation in entrepreneurship creates a huge opportunity for growth.
“By having women participate in entrepreneurism at higher rates, especially in the high-growth space, we can actually have a substantial impact on the economy in terms of revenue, in terms of payroll, and in terms of employment,” said Alicia Robb, a senior fellow at the Kauffman Foundation and author of the report.
To encourage the growth of female entrepreneurs, it’s important to understand what’s holding women back.
Learn How to Fail
Success stories are certainly inspiring—and there’s no shortage of Facebooks, Googles and Yahoos to fuel those tales. But many female entrepreneurs say one of the greatest factors in their success is actually learning about failure.
Here’s why: Female entrepreneurs are more likely than men to apply the lessons they’ve learned from past mistakes to their future ventures, the study reports.
However, because women tend to take fewer risks than men, they also have fewer experiences with failure from which to learn. “Women tend to take failure a little more personally than men,” Robb says.
It’s important for women to see that taking risks—even when they don’t pan out—is all part of the job description for entrepreneurs, she adds. “You’re going to get 90 no’s before you get 10 yes’s, so it’s really important to see that errors and failures are just part of the process of launching and growing your business,” Robb says.
Women also need more role models to inspire them to start new companies—and take those companies to the next level. Mentorship is an important factor in an entrepreneur’s success, says Robb. A lack of women leaders to provide encouragement and advice can put female entrepreneurs at a disadvantage.
“I definitely think that showing women what is possible makes them realize they can dream big and achieve great things,” says Robb.
Part of the solution is not only encouraging more women to start companies, but also encouraging more women to become investors, adds Robb. Angel groups like Golden Seeds, Astia Angels, and the Pipeline Fellowship are helping more women prepare to be investors.
At Golden Seeds, for example, female investors who want to back other women can access investment opportunities that are vetted by the organization’s angel network or take advantage of training that offer an overview of investing.
“There are some good signs that change is coming, but we want to see more change, and we want to see bigger change,” says Robb.
Close the Financing Gap
Although 31 percent of female entrepreneurs had angel investors and 14 percent had venture capital funding, a whopping 80 percent of women still relied on personal savings as their top source of funding, making it harder to save for the future, the study found.
Since growth-oriented companies require a lot of external capital, this helps explain why fewer women-owned firms are getting to the next level, says Robb.
Multiple studies show that women are investing significantly smaller amounts of financial capital and outside equity into their companies as they grow. Nearly a third of women-owned firms in the Kauffman study had no employees other than the owner, and only 15 percent had more than five employees.
Better access to bank, angel, and particularly venture capital financing for women can encourage more growth, says Robb. From 2011—2013 companies with a woman CEO received just 3 percent of the $50.8 billion invested by venture capitalists, according to a study by Babson College.
Overall, female entrepreneurs are a significant untapped resource for future economic growth. But tapping into that resource by tackling the issues that specifically hold women back can create future economic growth for everyone.
Originally published on Northwestern MutualVoice on Forbes.com.