Bridging the Barriers to Finance for Women Entrepreneurs of Color

While making up half of the world’s population, women entrepreneurs receive less than 20 percent of startup finance. Despite their best efforts, these constraints are even more prominent for women of color. And yet women started 42 percent of new businesses in the U.S. between 2018 and 2019, with women of color accounting for the lion’s share: 89 percent. Clearly, something doesn’t measure up.

Grappling with the barriers that face women entrepreneurs, and particularly those from underrepresented groups, has been the focus of the work of Tara Sabre Collier over the past 15 years. She is a Social Entrepreneur in Residence at Oxford University, where she lectures on impact investment as well as diversity equity and inclusion.

During an interview with TriplePundit, Sabre Collier set out the considerable barriers that female, and particularly female entrepreneurs of color, are up against—and some of the innovative ways that the gap in capital is being bridged.

Women entrepreneurs face legal and cultural barriers to capital

For one thing, Sabre Collier noted, there remain legal barriers in many parts of the world that can prevent access to capital and to entrepreneurship. According to the World Bank’s Women, Business and The Law database, of the world’s economies, more than 30 percent restrict women’s freedom of movement and 40 percent have laws constraining women’s decisions to join and remain in the labor force.

In the Western world, as Sabre Collier continued to explain, most of these legal barriers have been dismantled; the problem instead is social and cultural factors, unconscious bias (unconscious beliefs about various social and identity groups) and a lack of women decision makers at the table deciding allocation of private capital. In addition, women entrepreneurs are more likely to have had career gaps, to be in lower-paying jobs, and face a gender wage gap. 

“All of these factors add up,” she says. “As a result, women have less savings and less wealth built up. You combine that lower aggregate wealth with greater household labor requirements for women, which has been exacerbated by COVID. That means the amount of additional work a woman has to do beyond her day job limits the amount of time she has available to invest in her business, far more than what happens with a man. By the time she joins an incubator accelerator, her business is still on average, farther behind. It's gotten less capital injected into it from her because she has less capital, and she has less time, and time equals capital.”

Sabre Collier continued: “When they graduate from these accelerators, women typically don’t really benefit. “It's not really helping them raise that much more additional capital. And part of that is because they're being compared to men. A lot of the investors are expecting to see traction: for the venture to be at this number of users or this revenue level, but she wasn't even on equal footing when she came into the accelerator. So really, if we want to back more women led companies, we need to look at the earlier stages.” 

Fighting the gender pay gap and unconscious bias

In the U.S., white, non-Hispanic women are typically paid just 79 cents for every dollar a white, non-Hispanic man makes, according to the National Partnership for Women & Families. For women of color, the gap widens: Latinas are typically paid just 55 cents for every dollar; Native American women 60 cents and Black women 63 cents.

“So that lower pay means the amount of savings one has available to bootstrap the business is lower,” Sabre Collier added. “You combine this with the fact that once you do bootstrap and you go through acceleration or incubation, you're going to also face unconscious bias and pattern matching.”

The latter is a tendency to process information by looking for, or interpreting, information that is consistent with one’s beliefs. For instance, people naturally tend to do a sort of pattern-matching, assuming that if they were successful, then someone who looks like them or went to the same school will be more likely to succeed, as diversity and inclusion expert Paolo Gaudino explained in Forbes.

Change is underway. After all, women control $14 trillion of personal wealth in the U.S., and they are a driving force using that money towards new strategies in the world of finance, including impact investing. Nevertheless, women entrepreneurs still face an uphill climb when it comes to accessing conventional means of funding.

Tomorrow: We’ll continue with how women entrepreneurs are now tapping into alternative sources of funding so that their ideas can become reality – as in new startups that can help boost local economies.

Image credit: Unsplash