Female Entrepreneurs Struggle to Get Funding, Says U Researcher

Lyda Bigelow, an associate professor in the Department of Entrepreneurship & Strategy at the David Eccles School of Business, believes in value. Value comes from many places in her highly trained eyes — as a former associate in the world of corporate finance at Kidder, Peabody & Company before beginning an illustrious career in the academic world. She has spent her entire academic career and professional life identifying value in businesses, risks, strategy and most recently young entrepreneurs.

Bigelow cuts right to the heart of a trend she sees in the finance world: “There aren’t that many women involved in funding.” Further research reveals the U.S. also lacks statistical data regarding female entrepreneurs and their success, or failures. This trend is a problem to be solved in Bigelow’s mind. “There are lots of different theories as to why we don’t see more female entrepreneurs and why we don’t see females as successful,” she said, “I wanted to focus on what I thought was one of the most crucial steps for any entrepreneur: initial funding.” But, without the necessary kind of data, Bigelow was at a loss for traction to begin this kind of research.

“Ultimately, I came up with an experiment to mimic the perspective of creating an IPO,” Bigelow said. An IPO is an initial public offering. It is the first time shares in a new company are available to the general public. This is a crucial moment for any startup company looking to get off the ground as it provides a major test of whether their company is going to be marketable. Bigelow built her experiment using her knowledge of the professional corporate finance world. She wanted the data to be as close to a real-world scenario as possible with only one variable — the sex of the CEO or head management.

Here’s how it works: The fake IPO’s data would be reviewed by a group of potential investors. “Various populations would go through the company’s materials and then the reviewers were asked a set of questions about how they thought the company would fare,” Bigelow explained. These reviewers were finance-savvy people of all different levels, graduate students, undergraduate students and even actual investment advisors. Each case bore the same answer: “The results were all negative when the CEO was a woman.” Female entrepreneurs have an appreciably harder time getting funding. So, Bigelow kept pushing. Why are women struggling and can they overcome this bias?

Bigelow is certain that no investor makes a conscious decision based on sex. “There is no economic reason to do so” Bigelow explained. “Bias, as a feature of the human condition is a subconscious factor.” So, where does this leave the women?

“It’s a bit depressing, but it’s okay. Making people aware of the fact that there is a problem is the start of a solution,” Bigelow said. “My hope is that these programs [like the Lassonde Entrepreneur Institute’s] might inspire women.”

Ultimately, female entrepreneurs have just as much value potential as males, and the same is true of all minorities. Bigelow pointed to one particular private equity company founded by Robert Smith. Smith founded Vista Equity Partners in 2000. As a black male, he struggled to get a foothold in the world of private investing. Today, “Vista is one of the best-performing private equity firms,” according to Forbes. Smith didn’t stop at becoming a success himself. He built his company by actively recruiting diverse individuals in the broadest sense. He also invests in smaller startups, specifically software companies, using the same principles. Diversity is value in his mind as in Bigelow’s. Entrepreneurs can look to examples such as Smith as they fight for their ideas in the early stages. Bigelow reminded them to keep in mind the foundations of good entrepreneurship: “Think critically, take the time to understand the difference between problem formulation and problem solving and build an arsenal of successful cases.” In some ways women have a head start because they get one more problem to solve and grow from at the very beginning of their journey.

Professor Bigelow’s work has been cited in journals such as The Journal of Accounting Research, Management Science, The American Association of University Women, The Journal of Managerial Issues and  The Cambridge Journal of Economics.

Further reading:

• Lyda Bigelow, Leif Lundmark, Judi McLean Parks & Robert Wuebker (2014). “Skirting the Issues: Experimental Evidence of Gender Bias in IPO Prospectus Evaluations.” Journal of Management.