Average startup rates for women worldwide dropped by 15% from 2019 to 2020, and held constant in 2021. These were among the findings highlighted in the new Global Entrepreneurship Monitor (GEM) 2021/2022 Women’s Entrepreneurship Report.
Analysis was provided in a recent webinar with panelists Amanda Elam, Research Fellow at the Diana International Research Institute at Babson College, lead author of the GEM Women's Entrepreneurship Report; Wendy Teleki, Head of the We-Fi Secretariat; and Wingee Sampaio, Global Program Director for the Cartier Women's Initiative. Aileen Ionescu-Somers, GEM Executive Director, moderated the session. You can watch the recording here.
Time constraints permitted additional attendee questions from being answered during the webinar. The below Q and A features these questions and responses.
Did the crisis (COVID) increase the gender gap for entrepreneurial intention and entrepreneurial activity? If so, did the gap increase more/less in low-middle income countries? Is any special policy needed in this new scenario?
Amanda Elam: In our pandemic YOY analysis, findings presented in the report show that that rates dropped for women in low and lower income countries by 20% for intentions, 7% for startup activity and 22% for established businesses. As for business exits, women in low and lower income countries saw a 24% increase in business exit/closing from 2019 to 2021. Adjusting for gender differences in entry rates, we found that women in low and lower income countries showed a 34% increase in business exits/closings relative to entry rates over those two years. There was no change in the gender gap for intentions, but the gender gap for startup activity narrowed while the gender differences in established business rates and exits/closings widened. The change in the gender gap in exit/entry ratios suggests that, in low and lower middle income countries, women showed considerably higher closure rates than men before the pandemic, but slightly lower rates than men in 2021.
In regard to the expert ratings on cultural support as well as the policy recommendation to establish and broadcast role models, do we have an idea of which signals/factors are most influential on the difference between women and men founders’ ‘calculus’ in high income contexts? (For example, the number of role models, pushback from stakeholders/gatekeepers, legitimacy, etc.).
Amanda Elam: If you can see it, you can be it. STEM programs are very effective approaches to overcoming the influence of gender stereotypes on occupational and industry segregation. At the same time, presenting role models within traditionally female-linked sectors to illustrate the high success of women founders is also needed for aspiring women entrepreneurs and for investors to see the kinds of economic as well as social returns that women founders can produce.
Can you share and comment on GEMs criteria/definition for women owned businesses / enterprises? We have run into situations where lax criteria leads to flaws that may result in programs not reaching the intended goals and KPIs.
Amanda Elam: There are limitations to all criteria used to define different startup populations and, whatever criteria are employed, some number of business leaders will try to game the criteria which will disrupt program efficacy and impacts. We see the same issues occurring in the investment community with impact investing. The virtue flag waving interferes with the best of intentions. That said, GEM definitions were specifically designed to better capture entrepreneurial activity in ways to support a broader view of new venture creation in both formal and informal sectors of the economy for research and policymaking.
Entrepreneurship has multiple definitions and is measured in many different ways across datasets. These definitions include self-employment, small businesses and innovation (new products, services, or business models, and even patent filings). Most datasets examining new businesses are based on new formal business registrations which ignore informal sector activity and very early stage activity. The challenge of comparing results across datasets is further muddied when it comes to gender analysis because most gender categories are focused on women-owned business (51% or more shares held by women) or women-led business (woman CEO or majority board representation). In the US, this is a real problem because 2.5 million jointly owned businesses are typically excluded from gender analyses and likely represent important gains for gender equality. Among VC-backed companies, for example, the representation of women on founding teams has grown significantly in recent years but these gains are lost when the analyses only compares majority women-owned to majority men-owned companies.
GEM asks respondents if they own all or part of the business and if they are an active manager in the business. Startups (TEA) led by these owner-managers are defined as businesses up to 3.5 years old, while established businesses led by these owner/managers are defined as businesses older than 3.5 years. Importantly, startups include nascent business (not yet paying wages) and early stage businesses (paying wages). The GEM methodology was purposely designed to capture business activity from the earliest stages of intentions and startup activity through established business ownership and exit.
Can you share a few examples of innovative ways VCs can assess women-led businesses?
Amanda Elam: That is a tough question. Unfortunately, the majority of investment capital in the US is controlled by men who are part of elite networks and directed towards business founders who are just like them. VC and angel investors are already working hard to address these issues through women focused investing, impact investing and the organization of women investor groups.
Beyond these efforts, I think it is imperative that VCs and other business investors recognize that they will miss good investment opportunities if they continue to believe that founder gender is a reliable predictor of the growth potential of a business. They need to look beyond gender to understand the market and industry factors that are consistently more reliable predictors of business growth and success.
Investors also have to be more skeptical of the “big fish storytelling” that characterizes VC pitching (over-confidence is an important part of the ideal entrepreneur stereotype) and value the more realistic narratives that women and many men founders bring. VCs will also miss good investment opportunities if they fail to network with women founders and include women partners in their firms. Much of the gender acumen needed in VC circles concerns understanding the cultural logics that underlie how men and women communicate and understanding how business networks are so heavily organized along gender lines.
To learn more, access the report.