The share of businesses started by women kept rising while the funding gap was stubborn

Younger women and women of color are starting more small businesses than men.

Women-owned startups made up 49% of all new businesses in 2024, up from 29% in 2019 and the highest share recorded in the past six years, per a new report from Gusto. The HR and payroll platform surveyed its users and also found that AAPI, Black, and young women were driving this trend.

Despite the risks and barriers that women face in starting their own businesses, many are choosing entrepreneurship because of the independence and autonomy it can offer, said Nich Tremper, senior economist at Gusto.

“It’s seeing a shift from this necessity entrepreneurship to this opportunity entrepreneurship,” said Tremper, referencing a change he saw in 2022. “So we’ve seen women go from saying, ‘I need to start a business to make ends meet, to take care of my kids,’ to, ‘I want to start a business because of the benefits that it provides.'”

Even with the growth of women-owned businesses, barriers still exist for women seeking investments to start or scale their startups. As a result, many rely on financing from their personal networks and debt to launch their enterprises.

Women of color are driving entrepreneurship

Tremper said the growth of new businesses is driven by women of color who are seeking more independence and ownership of their work.

Fifty-four percent of all new AAPI- and Black-owned businesses were started by women, compared to 46% that were started by their male colleagues, per Gusto.

Social justice movements like Black Lives Matter and Stop AAPI Hate bolstered support for businesses owned by women of color, per a report published earlier this year by Wells Fargo. Tremper added that Black and AAPI women-owned businesses gained more momentum during the pandemic.

Meanwhile, Hispanic women made up 43% of new business owners compared to 56% of Hispanic men. Gusto reported that the disparity was because women-owned businesses are focused on the community and personal services sectors, while almost half of all Hispanic-owned businesses are concentrated in goods production like home remodeling or construction. Men started nearly 70% of businesses in that sector.

Younger generations of women are also reaching gender parity: More than half of the businesses created by millennials and Gen Zers were women-owned. On the other end of the spectrum, male baby boomers made up 64% of new business owners compared to 36% of boomer women.

Although it’s typical for people to launch businesses in their mid- to late 30s and early 40s — after they’ve developed an expertise in a particular field — that trend has been changing, Tremper said.

“As women are increasingly a large share of the labor market over the last several years, millennial and Gen Z women are really starting businesses at higher levels,” Tremper added.

The equity gap in business financing

Women-owned businesses earn a higher return at $0.78 for every dollar invested compared to men’s $0.31, Tremper said. Additionally, women-owned businesses have seen faster revenue and employment growth in the past five years compared to businesses started by men, per Wells Fargo.

However, Tremper said there’s a persistent gender gap between equity financing for women and men.

“The women who do receive this equity financing really outperform men, but they’re still getting it at a lower rate,” Tremper said. Women who apply for private investments are 75% less likely to receive equity funding than their male peers, per Gusto.

Gusto’s research found that women largely relied on their social networks and accruing personal debt to finance their new businesses. It was more common for women to also secure private loans through collateral in their homes or vehicles, which can expose them to more financial risks.

That means that the stakes can be higher for women-owned businesses—if the founders fail, their personal finances could take a hit.

Despite these challenges and barriers, women-owned businesses are resilient and continuing to find success in the market, Tremper said.

“We’re seeing these women-owned businesses coming into the economy and sticking around,” he added. “They’re keeping their course, they’re active players in the economy.”

Do you have a story to share about taking on personal debt to start your own business? Contact this reporter at [email protected].

The post The share of businesses started by women kept rising while the funding gap was stubborn appeared first on Business Insider.