SEC Rules and Gender Bias

Do investor rules keep women out of the game?

Since women earn 79 cents to the dollar on men, perhaps new SEC accreditation standards for women could help level the start-up playing field.

Women-led start-ups receive about 7% of all venture funding in the U.S. There is a wealth of female-inspired innovation not getting funded because men hold the wealth to fund it. In early stages, I think men often simply don’t understand or don’t value women’s ideas. One example? Sara Blakely couldn’t find a female patent attorney and the male patent attorneys she did find just couldn’t get their brains around the concept for Spanx – an idea which entirely disrupted a $110 billion global industry and made her the youngest self-made female billionaire.

Men are 60% more likely to get funded for the same pitch compared to their female counterparts seeking early stage funding. Gender bias plays out daily in conference rooms and board rooms where men are often credited for women’s ideas. Hat tip to the women of the Obama Administration for calling out and developing a specific strategy for combating this phenomena.

Here’s how the federal Securities and Exchange Commission compounds this gender bias: Its rules, designed to protect the public, make it really hard for women to join men in the angel investor market, where many ideas are either saved or sunk. To invest in a private venture, to be an angel, one must be accredited. Because the risk is so high, the standards for accreditation are meant to ensure that only those with money to lose are allowed at the table.

The standards are this: you must have earned $200k a year (or $300k jointly with your spouse) for the last two years, or you must have a million dollars in net assets, excluding your personal residence. As a matter of public interest this all seems perfectly reasonable, until you take into account persistent gender pay and wealth gaps. Women are simply less likely than men to achieve these accreditation standards. Which means that if you’re a woman with a great idea, and you need funding to get it out of the lab or into the market, it’s going to be harder to find a woman you can pitch the idea to than it is to find a man who is less likely to fund you.

How different would the start-up landscape look if we pared investor accreditation standards for women with pay equity? As long as women earn 79% of what men earn, shouldn’t we be allowed in on angel investing if we earn $158k a year or have $790,000 in net assets? What kind of capital might this open up for women entrepreneurs?

Of course, women are needed at every stage of investing, not just seed and start up. Last year, women-owned ventures accounted for 29.2% of entrepreneurs seeking angel investment, and only 14.4% of them got it. That’s a low yield rate; one that declined steadily over the previous four years. One possible reason? Women investors accounted for only 25.3% of a $25 billion angel market. If women entrepreneurs and women-owned companies are going to get a fair(er) shot at a slice of that pie, they’re going to need access to more women investors.

Sure, this business of removing barriers is a slippery slope. I mean, making it easier than it is now for women to invest could lead to more gender equity on corporate boards, since investing is one way directors “earn” their seats. And that means women could be more involved in big decisions that impact billions of customers and employees. Imagine what crazy ideas we might have. And since high risk can lead to big rewards, allowing women in on the game might just build more wealth for women. I wonder what we’d do with that.

I think it’s time women came knocking on the SEC’s door. Don’t you?

(PS – Clearly I’m new to this whole blogging business. Not clear to me are the rules for where to bold or what to cite, so I’m just doing that shit randomly. Shoot me an email if you have burning thoughts on such matters.)