COVID-19 has hit businesses hard and driven the economy into a recession. Unemployment in the United States grew from almost four percent in February to 13 percent in May. While that number subsided by a couple of percentage points last month, bankruptcies have continued. According to Bloomberg, since March at least 114 companies have filed for bankruptcy, citing coronavirus as a factor. The question that looms large is how we can build a strong, resilient post-COVID economy.
Some strategies, like those from McKinsey & Company, recommend prioritizing employee health and skills and bolstering innovation. But we can also look to the 2008 Great Recession to find a way forward. One lesson to learn is the value of female entrepreneurs.
Cornerstone Capital Group, an impact investing advisory firm, came out with a paper this week that details the ways female entrepreneurs uniquely supported U.S. economic recovery after the ’08 recession and how the nation can maximize those benefits today as it looks ahead to a post-COVID economy.
Cornerstone Capital’s report reveals many contradictions in numbers for female entrepreneurs. Women-owned businesses are growing fast — at a rate of 21 percent since 2014. Those owned by women of color are the fastest growing of any entrepreneurial cohort, the report says. But companies started or cofounded by women are finding a dearth of funding: they have received less than half the investment capital of those founded by men.
This lack of investment is not reflective of women’s unsuccessful business practices. Cornerstone reports that female-founded and co-founded companies generate 10 percent more cumulative revenue over a five-year period than their male-founded counterparts.
Additionally, together with firms owned by people of color, women-owned businesses were fundamental to stabilizing the economy after the ’08 recession — adding 1.8 million jobs between 2007 and 2012. Businesses owned by white males lost 800,000 jobs during this period.
This pattern of prosperity existed despite these enterprises being more likely to shutter during the recession.
If companies owned by women and people of color are able to stimulate the economy, investors should take this into consideration, especially in the coming months, as the world emerges from a pandemic.
In January, before the pandemic hit, the National Women’s Business Council (NWBC) issued policy recommendations to support women-owned businesses.
“Female founders continue to face endemic barriers in accessing capital to start and grow their businesses,” NWBC Chair Liz Sara said in a press release. “Data indicates that female founders received only 2.2 percent or just $2.9 billion of the total $130 billion of 2018 venture capital dollars.”
Some recommendations from the NWBC included creating a federal angel investment tax credit to increase the quantity of potential investors, creating a first employee tax credit and altering Small Business Administration program requirements to allow for more venture capital and equity investments.
Ensuring women-owned businesses thrive is not simply a matter of increasing investment. Changes to federal policies are part of the picture. But we also need to support these businesses from other angles.
“People tend to focus on the funding problem and not on the pipeline problem,” Kathryn Finney, founder of DigitalUndivided, a social startup that helps Black and Latinx women build their businesses, told TriplePundit in 2018. “How are we developing more companies that are positioned well to receive funding? How do we support [women founders of color] who have received funding to raise the amount they truly need to build and scale their companies?”
Of course, as Cornerstone Capital emphasizes, investors have their own part to play, not only for the good of the nation’s economy, but for their own profit. Women-led companies have a track record of strong returns on investment, and the market opportunity is substantial.
If you’re an investor looking into a post-COVID economy, right about now is a good time to look into how women-owned businesses fit into your portfolio.
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