27 October 2021

Why are there so few female entrepreneurs?

By Aria Babu

Fewer than one in three entrepreneurs in the UK is a woman. This sets us behind countries like Canada, Australia, the US and the Netherlands. If British women founded businesses at the same rates as women in these other countries it could boost the economy by £200bn.

A new report from The Entrepreneurs Network, Inspiring Innovation, explores the barriers that are preventing women starting businesses and how to overcome them.

First, finance. Women start businesses with less money than their male counterparts. They are less likely to use their own money, they take out smaller loans, and they are less likely to receive large sums of equity finance. Female founders, while making up almost a third of all entrepreneurs, raise only 15% of all equity finance.

This is not uniform across sectors. We found that in GreenTech, which is a sector of entrepreneurs innovating to save the environment, the funding gap has closed. While in other sectors we looked at, like AI, female founders receive only 2% of all funding.

One reason GreenTech has managed to close the gender gap while other sectors have not, is that it has attracted a larger number of socially conscious investors who are more willing to overcome the venture capital industry’s biases.

But before they get to the financing stage, deeper social factors deter women from starting businesses, particularly in high growth sectors. For example there is the the STEM ‘leaky pipeline’. As teenagers, girls are just as capable as boys when taking their maths GCSEs, but then they are less likely to pursue STEM A Levels. Girls who take STEM subjects at A Level are less likely to pursue STEM degrees. Women with STEM degrees are less likely to embark upon STEM careers. And women with careers in STEM are less likely to stay in the field and rise up the ranks.

Unequal household and childcare responsibilities remain a major driver of gender inequality. Only 10% of married couples split household chores equally – in 77% of straight couples, the wife does more of the work. It is harder to start and scale a successful business if you have an extra few hours of unpaid labour once you get home.

Women also experience a lack of role models and mentoring opportunities. People who work with or live in the same neighbourhoods as entrepreneurs are more likely to become entrepreneurs themselves. It seems like entrepreneurship isn’t innate – it has to be inspired.

But it is not as simple as ‘people who work with entrepreneurs are more likely to become entrepreneurs’. This effect is stronger the more similar people are to each other. This is true if they are the same gender, of similar ages, if they are both parents or both not parents, if they have the same educational background, or if they grew up in the same place. This means there is a negative feedback loop, with there being fewer female entrepreneurs and therefore fewer opportunities to inspire women to become entrepreneurs.

It is not all doom and gloom though. Progress is being made on all of these fronts. The equity gap is shrinking as the venture capital industry realises how much money they are missing out on by under-investing in female entrepreneurs; over the past ten years, the number of women taking STEM degrees has increased by 50%; as progressive values spread, men are taking on a greater share of household chores; and a number of organisations are proactively creating networking opportunities and mentoring schemes for women and girls.

With the budget coming out today, we will all be looking to the Chancellor to see what policies he will propose to grow the economy. The talents of half the population are currently being underutilised, and policies which boost the number of female founders are an obvious place to look.

But the solutions may be found in unlikely places. Making good quality childcare more accessible is one of the most important things that can be done, and it will bring us in line with our peer nations that are outperforming us. But we don’t want more subsidies. The UK has some of the highest childcare costs and also some of the highest subsidies in the OECD, but we also have some of the strictest regulations which are driving up costs.  The evidence suggests that strict childcare ratios have only a weak impact on pastoral care but a significant impact on cost – if we loosened restrictions to Norwegian levels we could halve the cost of childcare.

Building more houses in Life Science and tech clusters will also boost the number of female founders. As long commutes are incompatible with the school run women will keep dropping out of these industries.

Change doesn’t happen with a single policy at the dispatch box, but a few practical changes to support female entrepreneurs could transform the economy – and society for the better.

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Aria Babu is a Senior Researcher at The Entrepreneurs Network.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.