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Women Reported Launching Startups With Half The Cash Than Men

Women reported needing half as much funding to start companies as men. Are we more resourceful or do we have access to fewer resources for us?

Women Are Launching Startups With The Cash Than Men - Are We More Resourceful? - Lioness MagazineOptions for funding entrepreneurial ventures are increasing in the U.S., particularly with the growth of crowdfunding and the prevalence of informal investors, but entrepreneurs still depend on bootstrapping and support from family and friends to finance startups—this according to the Global Entrepreneurship Monitor (GEM) 2015 U.S. Report issued by Babson College and Baruch College.

In 2015, entrepreneurs needed a median level of $17,500 to start their businesses, and financed 57 percent of funding needs themselves.

Women reported needing half as much funding to start companies as men — $10,000 and $20,000 respectively — suggesting that women felt they could accomplish what they needed with fewer resources, or that they simply have fewer resources to apply to their businesses.

“Globalization, changes in technology, and social awareness have provided an impetus to develop capital flows from diverse sources,” said Babson College Professor of Entrepreneurship Donna Kelley, the GEM Report’s lead author. “Startup activity benefits from widespread recognition of the role entrepreneurship plays in increasing employment and improving the economic health of the nation.”

Beyond personal sources, the most popular funding source for entrepreneurs came from banks, at 36 percent. “This is contrary to the common belief that banks are not the best source of finance for startups,” added Kelley, “This finding reveals the key role banks play in fostering entrepreneurship in their local economy.”

The government also played an important role in business starts. In addition to financing 22 percent of all entrepreneurs, government programs were the most powerful source of funding for social entrepreneurs, revealing the importance of government policy in helping entrepreneurs create lasting economic and social value.

Crowdfunding, a still-emerging source, contributed to the financial needs of 12 percent of entrepreneurs.

Six percent of the total U.S. population acted as an informal investor in an entrepreneurial venture.

Summarizing the results from above, all entrepreneurs, on average, drew funding from:

  • Banks (36 percent);
  • Family (24 percent);
  • Private equity or venture capital (24 percent);
  • Government (22 percent);
  • Employers or work colleagues (16 percent);
  • Friends (15 percent), and
  • Crowdfunding platforms (12 percent).

Key Highlights

Total entrepreneurial activity (TEA) in the United States declined by two percentage points to 12% in 2015, reversing a four-year trend of increasing TEA rates. This decline was entirely due to a drop in nascent activity, meaning that fewer people were entering entrepreneurship in 2015.

  • With regard to ethnicity, African-Americans start businesses at higher rates than Caucasians (14% vs. 12%), but their established business ownership levels are little more than half that of Caucasians (4.5% vs. 8.7%). This raises questions about why so many African-Americans start businesses, while comparatively few have transitioned to the mature phase.
  • Age patterns in TEA rates by gender show low rates (7% to 9%) among younger women (18 to 34 years) and older women (45 to 64 years), with a spike upward to 15% in the middle (35 to 44 years) age group. Men maintain high rates throughout their working ages, declining substantially only after age 55.
  • Sixty-nine percent of entrepreneurs in the United States stated they were motivated to start by the pursuit of opportunity and they desired to increase their income or the level of independence in their work.

About the Report

The 2015 Global Entrepreneurship Monitor (GEM) U.S. Report generates in-depth insights about entrepreneurship in the United States, examining multiple phases of this process, profiles of entrepreneurs and their businesses, and societal attitudes that reveal potential entrepreneurs and support for this activity. Global and longitudinal analyses enable comparisons with other economies around the world and within the United States over time. Particular attention is paid to the participation and characteristics of women and both younger and older entrepreneurs. New in the report this year are chapters on social entrepreneurship, finance, and entrepreneurship in five U.S. states (California, Florida, New York, Ohio, and Texas).

A key aim of GEM is to inform academics, educators, policy makers, and practitioners about the frequency and nature of entrepreneurship in and across economies around the world in order to foster better understanding, support, and conditions that allow entrepreneurship to thrive. This report more specifically aims to advance knowledge about the multidimensional nature of entrepreneurship in the United States, with comparisons to other economies and insights on longitudinal changes over time.

The 2015 GEM U.S. Report is authored by Babson Professor Donna Kelley; Babson Associate Professor Abdul Ali; Babson Vice Provost of Global Entrepreneurial Leadership Candida Brush, Babson Professor and Entrepreneurship Division Chair Andrew C. Corbett, Senior Lecturer and Babson Faculty Advisor for the John E. and Alice L. Butler Venture Accelerator Program Caroline Daniels, Babson Associate Professor Philip Kim, Babson Assistant Professor Mahdi Majbouri, Baruch College Professor Thomas S. Lyons; and Baruch College Professor of Entrepreneurship and Department Chair, and Academic Director of the Lawrence N. Field Center for Entrepreneurship and Small Business Edward G. Rogoff.

Detailed Highlights of the Report

Financing Entrepreneurship

  • Entrepreneurs needed a median level of $17,500 to start their businesses, up from $15,000 three years prior.
  • In 2015, entrepreneurs financed 57 percent of their funding needs themselves.
  • Women reported needing half as much funding to start companies as men, $10,000 and $20,000 respectively.
  • Necessity entrepreneurs, motivated by the need to find work, required an average of $22,000. Opportunity entrepreneurs needed an average of $15,000.
  • The most popular external funding source for all entrepreneurs came from banks, with 36 percent stating they used bank financing to start their business.
  • Government sources also play an important role in business starts, providing to 22 percent of all entrepreneurs, and serving as the most popular source for those focused on social ventures.
  • Crowdfunding, a still-emerging source, contributed to the financial needs of 12 percent of entrepreneurs.
  • Financial requirements increased with greater job creation ambitions and for entrepreneurs in the extractive, transforming, and business services sectors.

Phases and Types of Entrepreneurial Activity

  • Total entrepreneurial activity (TEA) in the United States declined by two percent in 2015 (12 percent), reversing a four-year trend of increasing TEA rates.
    • The decline was entirely due to a drop in nascent activity, meaning that fewer people were entering entrepreneurship in 2015.
  • Established business rates stabilized at 7 percent, essentially the same rate as reported in 2014.
    • Established business ownership had dropped for three years in a row starting in 2012, likely influenced by the drop in startup activity in 2009 and 2010.

Self-Perceptions and Motivation

  • The United States reports the highest level of opportunity-motivated entrepreneurs who are improvement-driven among the 24 innovation-driven economies participating in the GEM 2015 survey.
    • Sixty-nine percent of entrepreneurs in the United States stated they were motivated to start by the pursuit of opportunity and they desired to increase their income or the level of independence in their work.
  • Americans remained highly confident in their abilities to start a business, but saw fewer opportunities to do so.
    • Opportunity perceptions dropped from a high of 51 percent in 2014 to 47 percent in 2015. This is the first drop since these perceptions begun to rise in 2010.
  • While entrepreneurs in the United States report the highest level of capability perceptions at the innovation-driven development level (56 percent), one third of all other economies surveyed report higher opportunity perceptions.

Social Entrepreneurship

  • Twelve percent of Americans are leading an/or trying to start a social enterprise.
  • Although these entrepreneurs tap a variety of funding sources, government funding is the most popular source.
  • While women account for about 39 percent of total entrepreneurial activity in the United States, they account for 49 percent of social entrepreneurship activity.
  • Examining social entrepreneurship activity by age shows that the 25-34 year-old age group is most active in trying to start social enterprises, with the 18-24 year-olds also quite involved.
  • With regard to future employment, social entrepreneurs tend to be optimistic. They estimate the number of people working in their enterprises five years from now to be about 25 (also a median score)—a doubling of the current number of employees and another indicator of a growth-oriented, forward looking branch of entrepreneurship.

Innovation and Technology

  • Over one-third of U.S. entrepreneurs reported selling products or services that are new to some or all customers and with few or no competitors.
  • The percentage of early-stage businesses using new technology and/or selling products or services based on new technology rose from eight percent in 2014 to 10 percent in 2015.

Gender, Age, and Ethnicity Distribution

  • Entrepreneurship peaks among 35-44 year olds at 17 percent.
    • This age group is also most likely to engage in entrepreneurial employee activity.
    • These high activity rates in this age group are accompanied by the highest level of opportunity and capabilities perceptions, as well as personally knowing an entrepreneur.
  • Workforce participation rates among the 55 and over population suggest that entrepreneurship, as well as established business ownership, is a key means of employment for those still working in their older years.
  • The rate of men’s entrepreneurship trends at one and a half times that of women since 2001.
    • However, the rate of women’s entrepreneurship in the United States is higher than in most of the innovation driven economies—even twice the rate of many innovation-driven European countries.
  • Age patterns in TEA rates by gender show low rates (seven to nine percent) among younger women (18-34 years-old) and older women (45-64 years-old), with a spike upward to 15 percent in the middle age group (35-44 years-old).
  • Men maintain high rates throughout their working ages, declining substantially only after age 55.
  • Additionally, while gender gaps exist in TEA rates, they are greater among established business owners and employee entrepreneurs.
  • Activity rates by ethnicity show the highest rates among African-Americans (14 percent), but only one-third this level of established business ownership activity.
    • The Caucasian population, in contrast, reports somewhat lower startup activity (12 percent), with established business ownership at three-fourths the startup level.
  • The Latino and Asian populations show both low startup and low established business activity.

Industry Sector Participation and Job Creation

  • Among a smaller amount of entrepreneurs that were starting and running new businesses in 2015, fewer operated in the business services sector and fewer expected to create six or more jobs in the next five years.
  • Job creation and profitability declined among established business owners.
    • Twenty-two percent added at least one job in the prior year, down from 27 percent in 2014.
    • Sixty-one percent expected to be profitable in 2015, down from 91 percent in 2014.
  • In 2015, 10 percent of entrepreneurs were starting businesses based on new technology, continuing a fluctuating but generally upward trend since hitting a low level of four percent in 2009.

State Breakdown

An examination of five states (California, Florida, New York, Ohio, and Texas) and comparisons with prior years (2012 or 2013) reveals considerable variations at the state level and a notable contrast with stable or incrementally changing indicators at the national level.

  • While the United States trends toward low international sales in general, all five states surveyed have higher internationalization levels than the national average, with particularly high levels in Florida.
  • Despite the reputations of Silicon Valley in CA and Silicon Alley in NY, and their close proximity to so much financial capital, these two states’ TEA rates are right about in-line with the national average.
    • Texas is a bit above average, and Florida is 17 percent above the national average.
  • New York and Ohio report lower TEA rates than the national average.
    • Contributing to these low rates are low opportunity motives among entrepreneurs, low activity among the middle age groups, and low and declining male participation in entrepreneurship.
  • Nationwide, there are more than 60 percent more men than women entrepreneurs.
    • California and Florida have male rates equal to or greater than the overall U.S. level.
    • New York and Ohio show an equal mix of both men and women engaged in entrepreneurial activities.
    • Texas is close to equal and also has the highest rate of women entrepreneurs.
  • Florida has a high prevalence of young entrepreneurs.
  • All five states are at or above the average for entrepreneurial activity in the 55+ age group.
    • California is double the national average in this population.
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