If you haven’t heard that the COVID-19 pandemic has disproportionately impacted women, let me catch you up. Women-owned businesses have been more likely to close than men’s. Women downshifted their careers or dropped out of the workforce altogether under the pressure of home and child care responsibilities. Since February 2020, 5.3 million women lost their job or left the workforce in the U.S., according to the Bureau of Labor Statistics, compared to 4.6 million jobs lost for men. In the first month of 2021 alone, women made up an astonishing 80 percent of U.S. job loss — more proof of a recession that is specifically hitting women, erasing decades of hard-earned work to narrow the gender gap. The United Nations has warned of a “shadow pandemic” with “devastating social and economic consequences for women and girls” worldwide.
As we move from short-term mitigation tactics — such as cash transfers and other much needed social protection measures like childcare and parental leave coverages — to longer-term recovery strategies, supporting women entrepreneurs is one of the most effective tools to revive growth. The 2019-2020 Global Entrepreneurship Monitor report details that challenging economic times can ignite entrepreneurship, jumpstarting job creation. In the U.S., minority and women-owned businesses were particularly big job creators and stabilizers of the economy following the 2008 financial crisis.
For a sustained recovery, we can support women entrepreneurs in two immediate ways: ease capital constraints and support the right entrepreneurial programs.
Ease capital constraints
The most significant hurdle women entrepreneurs face is their unequal access to finance. Despite being ready and able to receive funding of all types, companies started or cofounded by women receive, on average, less than half the amount of investment capital as male founded companies. According to a BCG study, U.S. women founders receive only 4.4 percent venture capital deals and a negligible 2 percent of all capital. This enormous gap was narrowing, until the pandemic. In 2020, funding to female founders was down 31 percent from 2019, while funding for all-male teams only dropped by 16 percent.
Investors should remember that women-founded and co-founded companies outperform their peers: BCG puts outperformance at 10 percent more of additional cumulative revenue over a five-year period. Female founders and CEOs continue to exit faster and at higher values.
While federal relief may be coming in the short term, state policy makers should include micro and small businesses in bailouts and support measures — as women entrepreneurs are relatively more represented in those. To ensure private sector financial support and access to credit is equally available to women and men, track it by gender and other diversity metrics to hold lenders accountable.
And women with wealth should consider targeted investing in addition to philanthropic activities. Women venture capital decision makers improve the odds of female founders getting funding by as much as 70 percent.
Support the right programs
Research by the International Labour Organization, Brookings, and Village Capital have found that support programs that combine financing (a mix of grants and investments) with mentorship, peer-to-peer networking opportunities, and targeted training, have the soundest track record of supporting women-led start-ups and the growth of existing female entrepreneurs.
Naturally this has to start with selecting enough women into these programs, and offering them a conducive environment to succeed. Many programs still suffer from bias in the recruitment process, one-size-fits-all programming, and/or bro-culture. These barriers to diversity can all be corrected by: working with diverse partners, judges, mentors and trainers; expanding recruitment networks to diversify the pipeline; design curriculums intentionally tailored to more diverse needs; and fixing the program’s culture — from marketing and messaging to staff.
Those funding support programs such as accelerators and incubators must insist on meaningful diversity metrics for recruitment as well as adequate programming and networking.
There’s a proverbial opportunity in this crisis. Women entrepreneurs have been responding to this extraordinary economic shock with great enterprise, agility, and optimism. The businesses they found can play a critical role in stabilizing the economy. To all those working towards recovery, our concerted response needs to include supporting women entrepreneurs as a condition to unlocking sustained growth.
Hala Hanna is the Managing Director, Community at MIT Solve, a program from MIT designed to fund and mentor social good tech entrepreneurs, especially women, from around the world. At MIT Solve and throughout her career, she builds catalytic partnerships and strategies for social impact. This work has included a public-private initiative for employment in the Middle East at the World Economic Forum, advising governments on public sector reform and donor engagement through her work at the World Bank and the UN, and building strategies and business models for nonprofits.