The U.S. Small Business Administration and the National Women’s Business Council
First published October 2001
For decades venture capital investment assumed a quiet yet crucial role in the development and expansion of growing ventures. But, the 1990’s boom in technology dramatically increased in the pool of equity capital and funding of new ventures with high growth potential. There is a substantial body of venture capital research on equity fund flows, investor criteria, and the nature of the investor-investee relationship, but no consideration of women-led ventures. Studies of women entrepreneurs have focused on psychological dimensions, business characteristics, and performance, but their financing strategies remain unexplored. Similarly, limited research on minority entrepreneurs explores issues of community participation, social networks, and loan accessibility but, research on venture capital financing is scarce. Hence, questions about the intersection of gender, race, ethnicity and equity capital financing remain unexamined. There is little data upon which to base public policy recommendations or programs.
This research investigated venture capital funding and women-led businesses. We utilized two data sets. First, we conducted a literature review and analyzed the nature of the venture capital industry. Using Pratt’s Guide to Venture Capital we created a proprietary database reflecting women’s involvement in the venture capital industry in 1995 and 2000. This data provides a summary of their participation and roles in venture capital companies.
Second, we analyzed the Venture Economics data set which includes private equity investments by venture capital firms for more than 30 years. Our analyses considered business location, size, industry and business sector which enabled us to a “map” venture capital investment in women-led-firms over time and test for differences based on gender. Although the data set specified gender and minority identification in its collection procedures, there was no minority data available. We, therefore, collected anecdotal information on minority access to capital through a website search and followup phone calls.
Results of this study show a very small percentage of investments are made in women-led ventures for all years, but a slight increase in investments occurred between 1995-1998. Women-led ventures more likely to receive funding are those in early-stage financing, located in the West and Northeast, and in computer hardware/software business sectors. Investments in women-led ventures differ from those in men-led ventures by business sector and stage of investment.
Present trends suggest women-led ventures are faring better. However, the proportion of funds that women-led ventures receive remains extremely small. This raises the possibility that women could be “left behind” in the wealth creation process. Implications for public policy conclude this report.