Today, women entrepreneurs are the new majority. Every day of 2020, women started nearly 2,000 small businesses. Of those, 64% were started by diverse women. But according to a study, conducted by the Nasdaq Entrepreneurial Center, Penn State University, and Fair Pay Workplace, pay, ownership, and valuation disparities are compounding the already large gender wealth gap.
Barriers to profitability and pay inequality
According to the study, access to capital is the number one barrier negatively impacting the profitability of women entrepreneurs. The top-three reasons women entrepreneurs don’t seek additional funding are:
• Don’t want to accrue debt
• Don’t think they’d be approved by a lender
• Decided to wait until their company hit a milestone to be in a stronger position to raise funds
The second identified barrier is declining sales followed by the unpredictability of business conditions. Fifty-nine percent of women entrepreneur respondents said their income varies from month to month, and 53% said they’re spending equal to or more than their income. Additionally, more than half of early-stage women entrepreneurs (55%) do not pay themselves for the work they do for their company.
On average, women pay themselves $53,000 less than men. Men who are entrepreneurs earn an average salary of $232,659 versus women entrepreneurs who earn an average $179,444. And the broader workforce pay gap shows that among entrepreneurs, women earn 77% of what men earn.
Additionally, data shows there is a significant gender gap in the venture capital system. Nearly 75% of investments in 2019 & 2020 went to white men, but less than 2% went to women of color. According to the Center for Venture Research:
• Only 5% of accredited women investors have access to invest in VC funds, even though women control 50% of wealth today.
• Only 1.8% of VC investments go to solely women-led startups. There are no large funds focused solely on women founders.
• Only 5% of general partners in VC firms are women.
In 2020, the total impact of these pay and investment disparities added up to a $140 billion gap. If the current growth trajectory of women entrepreneurs continues, the Global Gender Gap Report 2021 calculates that it will take 135.6 years to close the gender gap worldwide.
Closing the gap and empowering women entrepreneurs
Closing the gender wealth gap starts with education and awareness, empowering women to break the cycle of debt, and equipping them with the tools and financial knowledge to start their own businesses and be successful entrepreneurs. Here are a few actions women entrepreneurs can take to support the growth of their businesses:
• Start with a strong foundation that will help with business decisions and strategic planning. It will also help to build wealth that can be reinvested into scaling the business over time.
• Connect with mentors and other experts to exchange knowledge, share best practices and learn from each other.
• Utilize resources that guide business owners through what is needed to get to a place where they are paying themselves a fair wage.
• Gain knowledge by turning to trustworthy information to support with critical business decisions.
While women are founding new enterprises every day, data reveals there’s still a long way to go toward ensuring they have equal opportunities to be successful. Fortunately, there are resources to help.
Jenny Flores is the Wells Fargo Head of Small Business Growth Philanthropy.