Why Aren't More Women Entrepreneurs Scaling Up?

23/08/2015 18:47 BST | Updated 22/08/2016 10:59 BST

Do men make better entrepreneurs than women? Not according to a recent policy paper from the US-based Kauffman Foundation, which found that women entrepreneurs bring particular sets of skills that not only set them apart from their male counterparts but lend themselves to success in business. The statistics are cause for quiet optimism - the number of female entrepreneurs increased by 9.6 per cent in the two years to 2013 compared to a rise of 3.3 per cent for men; and hubs like Google's Campus have seen a steady increase in female entrepreneurs among its members, up 9 per cent year-on-year.

The truth remains, however, that these women-led enterprises are not scaling up at a rate even close to male-led companies. This is not necessarily as alarming as it sounds: a recent Sage study suggests that while men prioritise "putting money in their pockets", female entrepreneurs are driven by a "true passion"; women also display greater ambitions to become serial entrepreneurs, so may be leaving their businesses before they see significant growth; and some female entrepreneurs intentionally keep their ventures small to maintain the "work-life balance".

But while understanding the motivations and reservations behind starting or scaling up a business is important, the fact remains that women-led businesses are much less likely to use private equity or venture capital and are more likely to be discouraged from borrowing. And it's not just a demand-side issue: male entrepreneurs are a whopping 86 per cent more likely to receive VC funding, and 59 per cent more likely to secure angel funding, than women. Just 2.7 per cent of all the VC finance raised in the US between 2011 and 2013 went to companies led by women, according research from Babson College.

There are many theories as to why women struggle to access finance more than their male counterparts, but a couple stick out. First, the perception remains that men make better entrepreneurs than women. A series of randomised controlled trials, carried out at the University of California Santa Barbara and Harvard University, revealed that a female name, picture, or voice cut the odds of receiving investment. This wasn't the biases of men towards women: judges were of both sexes.

Perhaps we shouldn't be surprised that perceptions are so skewed: disposition towards entrepreneurship is shaped by prevalent discourses in the entrepreneurship field. "Such discourses are often propagated by the media, where new high-tech businesses, for example, are typically presented as being male-led," a BIS report says. And men are hardly short of role models: think UK entrepreneur and it's likely Sir Richard Branson or Sir James Dyson will be the first to spring to mind.

And many parts of the finance industry - like venture capitalism or private equity - have long been dominated by men. Around 78 per cent of VC firms in the US have never had a woman represent them on the board of one of their portfolio companies; more than three-quarters don't have any women working as VCs at all. Renowned venture capitalist Kerri Golden has been known to joke that the good thing about working in a male-dominated industry is that during conferences or events, there's no queue for the ladies room. The bad news, she says, is that "all the deals are happening in the men's room". But this has serious implications. "There's a human bias towards what you know," says Vivi Friedgut, the female entrepreneur behind EdTech business BlackBullion. If you're not in the right network, making the right connections, you are diminishing your chances of securing investment.

What's the solution? Is Friedgut right that, with an increasing number of women entrepreneurs in the pipeline, things will progress organically? Or should we listen to John Burns of Breakaway, who recently told the Financial Times that "getting more women to the pitching stage is the best way to change things"? What of funds or banks investing solely in female-led businesses? "I want someone to invest in my company because they can see its potential," Friedgut says. She's right: women should not face discrimination - positive or negative - when it comes to finance.

But the government could help. It is positive that coding has already been added to the curriculum for every five year old - but we need more girls to be inspired and encouraged to study and build careers in the science, tech, engineering and maths (STEM) sectors. We need more campaigns like WISE, which aims to get 1 million more women into the UK STEM workforce. And we need the government to work more closely with schools and universities to promote these subjects.

Female entrepreneurs are a huge untapped resource. "There's a gap in the market that will be filled by women," says Friedgut. "And angels and VCs will capitalise on that. It's just a matter of time."