Gusto’s “2024 New Business Formation Report” has some encouraging news about female entrepreneurs. The survey of more than 1,300 business owners who started their companies in 2023 found that 49 percent of the new business owners were women versus 45 percent men. That represents a dramatic leap from 2019, when just 29 percent of new business owners were women.
Yet, while women lead in new business creation, they’re not receiving as many funding opportunities as men. In 2023, only three percent of women entrepreneurs surveyed received a private capital investment to start their business, compared with 9 percent of male entrepreneurs. Traditional lenders also seem to prefer male business owners.
The gender gap doesn’t solely reflect differences in the industries where men and women tend to start businesses. Within the professional services sector, for example, nine percent of men reported receiving a private capital investment, compared with two percent of women.
The fresh data provides a good jumping-off point for exploring the forces shaping the surge in female entrepreneurship.
What’s behind the jump in female entrepreneurship?
According to the Gusto report, the flexibility that often comes with entrepreneurship is a strong driver for women entrepreneurs. Seventy percent of women who started a new business in 2023 cited it as one of their top motivators. They care deeply about having more freedom to decide how and when they work.
Another study of women entrepreneurs similarly found that they want “a lifestyle that allows them to balance their professional aspirations with their personal responsibilities and values. They seek the flexibility and autonomy that comes with running their own businesses, enabling them to prioritize family, health, and personal growth alongside their entrepreneurial ventures.”
Flexibility isn’t the only motivator. Thirty-seven percent of Gusto’s women entrepreneur respondents were seeking financial stability and the ability to build wealth, while 30 percent seized a business opportunity. Here are some other factors in the spike in female entrepreneurship:
Investments in support for small businesses
The onslaught of the COVID pandemic brought large government investments to help keep small businesses afloat. Women entrepreneurs were able to take advantage of financial support offered through the Paycheck Protection Program, Community Development Financial Institutions, and various tax breaks, such as the employee retention tax credit. The support helped them keep their heads above water and, in some cases, position themselves for success as the pandemic finally waned and consumers began spending more heavily.
Necessity entrepreneurship
Some entrepreneurs launch a new business based on an innovative product or service idea. Others become entrepreneurs out of necessity. They are “forced” to start a business because they’ve lost a job, need to supplement their other income, or require flexibility to keep up with the demands in their lives. Not surprisingly, necessity entrepreneurship tends to rise during uncertain economic times, like pandemics and recessions.
The businesses that emerge during these times are frequently “nonemployer,” meaning freelance or side gigs. But during the COVID years, women opened both nonemployer and employer businesses, growing revenue for both types. Women-owned businesses added 1.4 million jobs and about $480 billion to the economy during the pandemic.
A wider playing field
More than half of women-owned businesses fall into four industries: professional and technical services, administrative and support services, health care and social assistance, and personal care and beauty services. But women entrepreneurs are increasingly moving into other sectors.
For example, the number of women entering the transportation and warehouse industry swelled during the pandemic, increasing by 51 percent. “Other services” and education services also experienced high growth among women-owned businesses. Women entrepreneurs are jumping in with finance, insurance, and real estate firms, too.
Digital tools
The widespread availability of affordable digital tools, from Etsy and Shopify to payroll and human resources software, has made it easier for women entrepreneurs to start e-commerce and other types of businesses. The tools empower them to operate their businesses from almost anywhere and access talent, material, and resources around the globe.
Social media platforms like X (formerly Twitter), Instagram, TikTok, Facebook, and Pinterest let these business owners regularly reach new and established customers with free or paid posts about promotions and products on their social media accounts. They can cost-effectively target niche markets and build trust and relationships.
Psychological factors
Psychological factors shouldn’t be overlooked. Men aren’t the only strivers who are driven at times by pride or similar personal needs. Women entrepreneurs also start new businesses due to a desire for achievement and admiration. In contrast to men, though, they may have hit a glass ceiling in their previous jobs, providing further fuel to succeed and prove themselves.
The gender gap in funding
Falling short on initial fundraising goals has a substantial effect on the long-term success of a new business. Funded companies enjoy 30 percent more revenue growth and 50 percent more growth in employees than those that don’t receive access to external funding.
As Gusto’s survey found, however, three times as many men used private funding for their business than women. Moreover, while venture capital funding overall in the United States has skyrocketed in recent years, only 2 percent of venture capital investments in startups go toward women-led ventures. Although the median investment by equity investors is almost $1 million in general, women-owned businesses receive less than a quarter of that amount.
On the positive side, venture capital funding in the United States for women-founded or co-founded companies has been trending upward, and several women-led funds and incubators for female founders were created in 2023.
However, the pitch process, in general, favors male-led new businesses, with multiple academic studies identifying strong gender bias in the process. For example, research published in The Harvard Business Review found that investors prefer pitches presented by male entrepreneurs over those of female entrepreneurs, even when the content of the pitch is the same. Interestingly, investors apparently find attractive males particularly persuasive, although physical attractiveness is irrelevant when it comes to pitches from female entrepreneurs.
In addition, women pitching to venture capital funders must field different types of questions than their male counterparts. Among 180 entrepreneurs and 140 venture capital funds involved in one TechCrunch competition, the male entrepreneurs were consistently asked more “promotion” questions (which highlight the upside and potential gains of the new business), while women faced more “preventive” questions (which highlight potential losses and risk mitigation).
Part of this pitch bias could be due to the so-called “similar-to-me” effect (aka affinity bias), whereby people unconsciously gravitate toward people who remind them of themselves. In the hiring context, for example, it results in the hiring of people of the same race, gender, age, or educational background as the interviewer or decision-maker
The venture capital world is largely made up of male investors (70 percent of them are white males). Venture capital firms generally are homogeneous in other ways, as well, with investors possessing the same degrees from the same universities and similar work backgrounds.
Venture capital investors may also unfairly question the reasons that female founders are starting a new business. For example, women are seen as more likely than men to be motivated, at least in part, by a desire to have a positive societal impact. Venture capital investors, on the other hand, usually prioritize profits first and foremost.
It’s worth noting that the gender gap in funding isn’t limited to private investors; traditional lenders under-fund women-led businesses, too. Forbes reports that the typical startup loan approval for a woman-owned business is just under $60,000, while the average loan for a male entrepreneur is more than $156,000.
Financial performance of female entrepreneurs
Concerns about the potential profitability of women-led businesses seem misplaced. The numbers tell a very different story:
- From 2019 to 2023, the growth of women-owned businesses outpaced the rate of men’s—94.3 percent for the number of firms, 252.8 percent for employees, and 82.0 percent for revenue.
- Five years after launch, the average return on investment for women-owned businesses in an accelerator program was double that of male-owned businesses.
- Women-owned firms in the United States are growing at more than double the rate of all other firms, contributing almost $3 trillion to the economy.
- On average, women generate 78 cents of revenue per dollar invested versus only 31 cents for men.
How to support rising women entrepreneurs
If women are to continue to make substantial gains in entrepreneurship, several steps will help:
Addressing gender stereotypes
Women generally are expected to act in certain, more “feminine” ways—which can work against them during the hunt for venture capital funding. Research shows they’re stereotyped as:
- Sociable,
- Relationship-oriented,
- Helpful,
- Sensitive,
- Nurturing,
- Affectionate, and
- Sympathetic.
By contrast, men are stereotyped as:
- Bold,
- Dominant,
- Assertive,
- Independent,
- Self-confident,
- Competitive, and
- Ambitious.
Unfortunately, the latter set of characteristics is valued more by investors, which can lead to implicit or explicit bias against women entrepreneurs. Venture capital funders need to understand that entrepreneurs of both genders possess skills and talents vital to the success of a new business—no one gender has a monopoly on such traits.
Remember, too, that gender biases also pop up within family and friend circles. This is notable because women often rely more on family and friends for financing—nine percent of women business owners surveyed by Gusto relied on such funding versus six percent for men. But if wealthy Uncle Bill buys into false gender stereotypes, he might not be willing to dig into his pocket to fund his niece with the new business idea.
Improving mentoring and networking structures
Like racial and ethnic minorities, women sometimes struggle to gain access to the strong networks and mentorship opportunities that can play an outsized role in entrepreneurship. More formal structures must be established to provide resources like mentoring and coaching, financial advisors, incubator and accelerator programs, and relationship-building opportunities.
Changing the funding process
The current process is far too vulnerable to gender bias, whether explicit or implicit. For starters, it overrates the importance of a founder’s ability to deliver a powerful pitch. The founder’s ability to develop and manage an effective team, and data related to customer needs, product fit, and sales channels, are better predictors of a new business’s future.
Venture capital investors could also follow the lead of symphony orchestras. Orchestras have long concealed the genders of auditioning musicians to minimize the risk of discrimination. Funders could adopt a gender-neutral process for startup founders. And they could make it a practice to ask founders an equal proportion of prevention and promotion questions.
Educating female founders better about the funding process
Such changes to the process will take time to implement. In the meantime, women entrepreneurs need more advanced knowledge and understanding of the process. Among other things, they must understand how they’ll be perceived by the typical venture capital funder—and how they can counteract any negative perceptions or assumptions.
For example, they can tailor their presentations for their audiences, which most likely will be majority male. So they should avoid words like “risk” and other preventive language, and instead focus on potential and growth when answering questions.
Taking advantage of regulation crowdfunding
Regulation crowdfunding first became available in 2016. It was touted as a tool for expanding access to capital for women-owned businesses by creating 300 million potential new investors for U.S. startups and existing small businesses. This novel method of financing lets an eligible company raise up to $5 million through crowdfunding offerings in a 12-month period without needing to go through the cumbersome process of registering the offering with the SEC. Instead, new businesses can raise money by soliciting relatively small individual investments or contributions from a large number of people.
Pursuing contracting opportunities
The federal government is the largest purchaser of goods and services in the world. Still, women are underrepresented in their share of procurement dollars. Grants.gov can help female entrepreneurs identify contracting opportunities. The U.S. Small Business Administration also has two federal contracting programs, the 8(a) Business Development program and the HUBZone program. Obtaining certification as woman-owned or minority-owned business from the Women’s Business Enterprise National Council or National Minority Supplier Development Council can increase new businesses’ odds of landing contracts or other work through local and national supplier diversity programs.
Find out more about the current landscape for entrepreneurs
You can learn much more about today’s trends in entrepreneurship by reading all of the key findings from Gusto’s “New Business Formation” in full in our blog post.
