Financing Strategies of New Technology-Based Firms: A Comparison by Gender

Abstract

Technology-based firms have been and will continue to be important contributors to the U.S. economy. For the past two decades, technology firms have been a major source of innovation, business development and growth, and new jobs. Securing funding for new technology-based firms is particularly problematic, however, whether they are owned by women or men. Many such firms are built upon intellectual capital rather than on physical assets, so it is difficult to determine the value and prospects of the firm. The problem of asymmetric or incomplete information is especially acute (Brierley, 2001), often resulting in a shortage of capital or capital that can only be obtained under unfavorable terms and conditions. A number of researchers contend that one of the primary reasons women-owned firms tend to be smaller than firms owned by men is that women tend to concentrate in low-growth retail and service lines of business (Rosa et al., 1996; Du Rietz & Henrekson, 2000). These businesses have a higher risk of failure (Robb, 2002; Fairlie & Robb, 2008; Watson, 2003) combined with a higher level of difficulty in attracting sources of capital due to their limited prospects for growth and profitability (Menzies et al., 2004; Sabarwal & Terrell, 2008). More recently, however, some researchers have begun to attack the “myth” that women do not want high-growth businesses (Brush et al., 2001). They contend that a new generation of women entrepreneurs is willing to “go boldly where no one has gone before” by starting firms in the fields of technology and bioscience, where there are opportunities for significant growth and profits. In this paper we will examine the financing sources and strategies, by gender, for new technology-based firms using the Kauffman Firm Survey data. We identify not only sources of financing, but also financing gaps which may impede the ability of women to launch and grow technology-based firms.