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New Venture Financing and Subsequent Business Growth in

Men‐ and Women‐Led Businesses

Article  in  Entrepreneurship: Theory and Practice · September 2006

DOI: 10.1111/j.1540-6520.2006.00141.x

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 1042-2587
© 2006 by
Baylor University

New Venture Financing

E T&P and Subsequent
Business Growth in
Men- and Women-Led
Businesses
Gry Agnete Alsos
Espen John Isaksen
Elisabet Ljunggren

This study investigates the possible funding gap for women-owned compared with men-
owned new businesses. With longitudinal data from new businesses in Norway, gender
differences in funding perceptions and behaviors, as well as in actually obtained amounts
of funding, are explored. While there are few detected gender differences with respect to
funding perceptions and behavior, women obtain significantly less financial capital
to develop their new businesses. Moreover, the results indicate that the lower levels of
financial capital that women business founders achieve are associated with lower early
business growth compared with their male counterparts.

Introduction
Entrepreneurship is still a male-dominated activity in the twenty-first century. In spite
of growing rates of participation in new venture creation among women, particularly in
North America, women remain substantially underrepresented among entrepreneurs
in Western countries (Reynolds, Bygrave, Autio, Cox, & Hay, 2003). In the Nordic
countries, the share of women entrepreneurs has been stable and low (about 25%) for the
last decade (Kolvereid, Alsos, & Åmo, 2004; Ljunggren, 1998). Norway, though often
portrayed as a country where equality between the genders is well developed, exposes the
same tendencies.
Not only do women start businesses to a lesser degree than men, but the few who take
this step seem to achieve less growth in their businesses than their male counterparts
(Cliff, 1998). Research on potential differences between women and men entrepreneurs
look for explanations of these differences (see, e.g., Alsos & Ljunggren, 1998; Cliff, 1998;
Miskin & Rose, 1990; Rosa & Hamilton, 1994; Sonfield, Lussier, Corman, & McKinney,
2001). Results have been various, but in total, there seem to be more similarities than

Please send correspondence to: Gry Agnete Alsos, tel.: 47-75-51-76-21; e-mail: Gry.Alsos@nforsk.no.

September, 2006 667

differences between the genders when it comes to motivations, risk aversions, start-up
activities, and so forth.
In the early stages of a business, the possibility for funding can be crucial both for
business survival and growth. Brush, Carter, Gatewood, Greene, and Hart (2004) assert
that a funding gap hinders the growth of women-led businesses. Moreover, undercapital-
ization has been identified as a major source of lower growth and poorer performance of
women-owned businesses (Carter, 2000; Carter & Rosa, 1998; Marlow & Patton, 2005).
It has been suggested that women and men differ when it comes to their strategies and
perceptions of business funding (Carter & Rosa, 1998; Verheul & Thurik, 2001). Further,
there has been some research on the business owners’ gender and access to debt capital
(Buttner & Rosen, 1992; Carter, Shaw, Wilson, & Lam, 2006; Fabowale, Orser, & Riding,
1995; Riding & Swift, 1990), but little related to gender and access to external equity
funding (Carter, Brush, Greene, Gatewood, & Hart, 2003). Several researchers point to the
need for more research on the demand side of business funding (Brush, Carter, Gatewood,
Greene, & Hart, 2002; Mason & Harrison, 1999). Most previous studies have been
conducted on businesses that have passed the early growth stage. The knowledge on
business funding in the start-up phase and early business growth is scarce, especially when
gender is focused upon.
This study seeks to contribute to knowledge on gender, business funding, and business
growth by examining gender differences in total financial capital resources at start-up and
during the early phases of fledging new businesses, as well as consequences for early
business growth. In particular, we investigate possible gender differences in perceptions
and behaviors to access business funding and their relation to achieved funding and
subsequent growth. A model on the effects of gender on business financing and early
business growth is developed and tested with longitudinal data from newly registered
firms. We examine the proposed funding gap for women-founded businesses compared
with men-founded businesses. Further, we look into whether the potential funding gap is
associated with early business growth. The sample frame consists of all new businesses in
Norway registered during a period of 4 weeks in 2002. Data were collected immediately
after registration and were followed up after 19 months. With this research design, we are
able to uncover the funding needs and how much funding the businesses actually receive.
This study looks into the gender aspects of the demand side of new business funding. In
what way is the gender of the business founder associated with the strategies used to fund
the business and the amount of financial resources that they are able to obtain for business
development? Further, we investigate if possible differences in access to funding are
associated with the level of early growth of their new businesses.
More knowledge in this area can help us understand how we can work to be able to
release the underutilized potential of high-growth women ventures, which may be impor-
tant for long-term wealth creation. To be able to unleash the growth potential of women-
owned businesses is important to further develop the Norwegian economy. However, this
is also an equality issue, as the uneven distribution of men and women business owners of
growing businesses has impact on the distribution of power, wealth, and income.

The Norwegian Context

Norway is generally perceived as a country where differences between men and
women are small. It is, among other things, characterized by high participation of women
in the labor force and by a high level of education among women. However, the gender
difference between the private and public sectors is marked with a high proportion of
women employed in the relatively large public sector, while men dominate the private

668 ENTREPRENEURSHIP THEORY and PRACTICE

sector (Foss & Ljunggren, 2006). Although the proportion of women among political
members of the national and regional governments is above 40%, less than 10% of top
managers in companies with more than 10 employees are women (Spilling, 2004).
Women constitute 24% of self-employed, and 26% of new business registrations are
women led (Spilling, 2002, 2004).
In Norway, as in most Western countries, funding for new business start-up can be
achieved through four main sources: personal savings (including family and friends), debt
financing, soft loans or grants supported by government, and equity funding from venture
capital institutions or informal investors (Borch et al., 2002; Foss & Ljunggren, 2006;
Jarvis, 2000). The government-supported funding is mainly offered through Innovation
Norway, a central government-owned institution that supports business and industry
development. The Norwegian venture capital industry is growing, but still underdeveloped
compared to, for instance, the United States. Norway has a large number of business
angels, but they invest relatively small amounts each (Kolvereid et al., 2004). According
to Borch et al. (2002), the need for external capital in business start-ups is scarce; most
new business ventures are financed by own and family funding. Knowing that Norwegian
women have lower income and less wealth than men (Jensen, 2005), they can be expected
to have less personal savings to invest in their own business compared with men (Carter
& Kolvereid, 1997).

Theoretical Framework

The acquisition of resources is a central element in starting a new business (Aldrich,

1999; Brush & Chaganti, 1999; Cooper & Dunkelberg, 1986; Landström & Johannisson,
2001). The entrepreneur’s ability to collect the necessary resources and combine these in
a new business may be crucial for whether the new firm will come into existence, and
whether the degree of subsequent growth will be achieved. Financial resources are vital in
this respect. This is the most basic and flexible type of resources as it can be transferred
into other resources when needed. Financial capital can also act as a buffer to possible
challenges due to changing environments, wrong decisions, and so forth (Cooper,
Gimeno-Gascon, & Woo, 1994). By securing resources from different sources, consider-
able risk is shifted from the entrepreneur to the stakeholders (Venkataraman, 1997).
Sufficient access to funding is associated with growth in small businesses (Storey, 1994;
Wiklund, 1998).
Women-owned businesses are often presented as performing less on indicators such
as revenues, income level, business size, and rates of growth. Findings from Canada
indicate that businesses led by women grow slower than men-led businesses (Jennings &
Cash, 2006). The Diana team suggested that one reason for the lack of growth in
women-owned businesses may be a funding gap for women entrepreneurs (Brush et al.,
2004). An overall model for the demand and supply side of women’s access to financial
capital is suggested by Gatewood, Carter, Brush, Greene, and Hart (2003). On the demand
side, the model highlights human, social, and financial capital as well as personal
cognitions/goals as important factors affecting the strategic choices of the entrepreneurs
seeking funding. The strategic choices regarding industry, product-market segment, loca-
tion, competitive positioning, and growth rate affect their ability to get access to external
funding. As a part of these strategies, entrepreneurs’ preferences and actions when it
comes to funding may affect the amount of financial capital that they obtain (Gatewood
et al., 2003). In this study, we focus specifically on preferences or perceptions and

September, 2006 669

behavior strategies of business funding when investigating a potential funding gap for
women entrepreneurs.
Greene, Brush, Hart, and Saparito (2001) suggested that women’s difficulties in
raising equity capital could be understood by three factors: (1) Women experience struc-
tural barriers when trying to acquire equity capital; (2) women do not want to use this
type of capital (strategic choice); and (3) women do not possess the necessary knowl-
edge and capabilities to acquire equity capital (human capital). Brush, Carter, Gatewood,
Greene, and Hart (2001) also claimed that women start businesses in sectors not attrac-
tive for external equity providers. While these arguments are put forward related to
equity financing, we suggest that they are also relevant for other types of funding, for
instance debt funding. Thus, the total financial capital that women (and men) raise to
start or grow their businesses is both dependent upon their own wishes, perceptions, and
behaviors, as well as upon structural factors in the capital market. Reasons for potential
differences in the level of financial capital in women- and men-owned new businesses
may thus be related to differences in perceptions and behaviors toward funding and
business growth, and/or to differences in structural barriers.

Gender and Access to Financial Capital

Previous research show somewhat contradictory results regarding the association
between gender and funding of new ventures (Marlow & Patton, 2005). There is evidence
that women entrepreneurs start firms with lower levels of funding than men entrepreneurs
(Carter & Rosa, 1998; Watson, 2002). However, research has hitherto not been able to
explain the reasons for such differences. Several studies on discrimination against women
in access to capital and credit have been carried out (Buttner & Rosen, 1992; Fabowale
et al., 1995; Fay & Williams, 1993; Riding & Swift, 1990). The findings are inconsistent.
In a more recent U.K. study, another methodological approach has been applied: Carter
et al.’s (2006) results indicate that gender is an important but hidden aspect in the
acquisition of business finance. Even though it is difficult to explicitly point at gender
discrimination, gender matters. These findings are in accordance with results from a
Norwegian study (Alsos, Ljunggren, & Pettersen, 2002). Here, loan and grant officers
were found to perceive female entrepreneurs as different from male entrepreneurs, and
also as different from the “ideal” entrepreneur.
Access to external financing in the form of debts is dependent on proprietorship. A
recent study indicates that ownership of capital and real property is unevenly distributed
among men and women in Norway (Jensen, 2005). Consequently, women have lesser
possibility to mortgage and thereby to acquire debt capital for the firm. This is not a unique
situation for Norway, as indicated by a report covering four of the European Union (EU)
nations (Innovation Norway, 2005). In addition, the fact that women, on average, have
lower income than men, has the consequence that women are able to invest less of their
own money into their businesses (Carter & Kolvereid, 1997; Marlow, 2002; Marlow &
Patton, 2005). Moreover, these differences can make women less attractive as borrowers.
Access to funding might also be dependent of the venture capital industry structure.
Evidence from Norway (Ljunggren & Foss, 2004) indicates that firms receiving capital
from private investors typically represent industries where women entrepreneurs are
particularly weakly represented. Further, the management and know-how in the venture
capital industry is gender biased; the management (decision) positions are almost without
exceptions possessed by men, and the homogeneity in management is apparent in an
educational and professional background.

670 ENTREPRENEURSHIP THEORY and PRACTICE

 As a whole, prior research in this area leads us to expect that women entrepreneurs
will start their new businesses with less financial capital than men. Hence, the following
hypothesis is suggested:
Hypothesis 1: Women entrepreneurs raise less financial capital for their new busi-
nesses than men.

Funding Perceptions and Behavior

Previously, we have pointed to the supply-side issues as well as the demand-side
issues related to structural factors in order to explain the expected lower levels of funding
of women-owned businesses. We now discuss demand-side issues related to the percep-
tions, choices, and behavior of entrepreneurs related to access to funding for their new
ventures. First, there is a relation between the structural factors and entrepreneurs’ per-
ceptions of funding opportunities, since their perceptions are formed in relation to how
they see these opportunities. For instance, entrepreneurs with low wealth and low income,
and hence not attractive customers to the bank, will be more likely to perceive the bank as
having high demands. Since, as previously argued, this situation is more usual for women
than for men, we can expect women entrepreneurs to a larger extent than men, to perceive
financiers as making strict demands. Also, they may perceive the funding opportunities in
the environment to be fewer.
Second, there may be differences between the genders relating to funding behaviors
and perceptions due to different approaches to entrepreneurship. Calls have been made to
explore the reasons and motivations for the funding decisions and strategies of male and
female small firm owners (Marlow & Patton, 2005). For instance, Marlow (1997) found
indications that self-employed women were less likely to apply for bank loans than men.
Moreover, Cliff (1998) argued that women may value the retention of control higher than
men. They may therefore be less likely to seek external equity capital.
Taking a feminist deconstruction perspective, Bird & Brush (2002) argued that there
are both feminine and masculine sides of entrepreneurship. Further, they identified femi-
nine perspectives on the entrepreneurial process, such as less focused and more diffuse
concepts of venturing and organizing, more emotional and cooperative interaction, shared
power, focus on relationships and caring, as well as an orientation toward time, which
implies more focus on the present than on the future. If women entrepreneurs more than
men take a feminine approach, their focus on what happens now instead of in the future
may imply that they have more difficulties writing a business plan with longer time
horizon and negotiation terms of loans etc. (Bird & Brush, 2002). Further, Bird and Brush
argued that feminine ventures are more likely to be self- or family funded, and with
the individual entrepreneur taking more risk and deeper commitment to the business. The
entrepreneurs dominated by a more feminine approach will more likely be orientated
toward internal factors such as employees, and they can therefore be expected to be less
oriented toward external investors or financiers.
The previous discussion leads us to hypothesize that women and men will differ
regarding how they perceive funding options and which actions they take to raise funding.
Further, we expect that such differences will partly explain differences in the amount of
financial capital achieved:
Hypothesis 2a: Women and men differ in their funding perceptions and behaviors.
Hypothesis 2b: The relationship between gender and the raised amount of financial
capital is mediated by the entrepreneur’s funding perceptions and behavior.

September, 2006 671

Business Growth
Welter (2001) found that German nascent women entrepreneurs seemed less inter-
ested in growing their businesses than their men counterparts. This is also in accordance
with findings from Norway (Isaksen & Kolvereid, 2005). However, there are some
variations within the genders; nascent women entrepreneurs with higher education state a
larger interest in growing their enterprise (Welter, 2006). In a survey among entrepreneurs
in Norway, Kolvereid (1992) concluded that growth aspirations are related to motivation,
education, industry, and a number of organizational variables including previous growth
in turnover and in the number of employees.
Evidence from Canada suggest that men and women seem equally likely to desire
business growth, but that women entrepreneurs are more likely to establish maximum
business size thresholds, which they do not want to exceed (Cliff, 1998). Moreover, these
thresholds seem to be lower than those of their male counterparts. Cliff suggests that
these thresholds keep the businesses in a size that the entrepreneurs’ are comfortable with,
enables them to maintain control over the business, balancing time and energy, and/or
balancing work and personal life. She does not, however, link different gender roles to the
explanation of these differences. The facts that men and women assign different amounts
of time to domestic work, have different educational backgrounds, and that men and
women are “embraced” with different social constructions of gender (Ahl, 2002; Berg,
1997; Foss & Ljunggren, 2006) are important when these differences are to be explained
and understood.
Even though Norwegian women’s participation in the labor force is high compared
with other countries (84% in Norway compared with 75% in European Union/European
Free Trade Association [EU/EFTA]), this participation is marked by a high degree of
part-time involvement (38% in Norway compared with 32% in EU/EFTA). Among men
in Norway, the share of part-time workers is 5.5% (Bø, 2004). This work pattern is
suggested to be brought forward when women enter self-employment and could be one of
the reasons why women-owned businesses are small and stay small. Some women start a
business creating part-time self-employment. In these cases, their maximum business size
thresholds are particularly low, which lead to low growth ambitions.
It is also argued that nascent entrepreneurs as well as small business owners are
reluctant to grow, because they perceive themselves as lacking competence or because
they do not perceive business growth as realistic when judging the environment/market
(Isaksen, 2003). Isaksen and Kolvereid (2005) found that women business founders have
lower growth ambitions than men. Cliff (1998) argued that if women have fewer resources
than men due to structural variations, they may perceive that they have inadequate
resources to pursue business growth. Cliff’s analysis included human capital resources
only, but this argument is also applicable to financial resources. Welter (2006) suggests
that the gender difference in growth ambitions might indicate a gender gap in access to
external resources—especially financial resources.
Marlow and Patton (2005) argued that gendered characterizations of women entre-
preneurs impact negatively upon their process of locating, accessing, and managing
finance (see also Bird & Brush, 2002). Further, they claimed that this may lead to
undercapitalization during business formation and development, which again may lead
to underperformance of the firm in a longer perspective. As a result, the business potential
of women’s businesses will not be fully realized. The findings of Watson (2002) partly
support this claim. In a comparison of men- and women-controlled businesses, he found
that women had lower total assets and lower levels of equity in their businesses compared
with men. When controlling for lower level of resource input, there were no significant

672 ENTREPRENEURSHIP THEORY and PRACTICE

Figure 1

Research Model and Hypotheses

Gender
Hypothesis 1 Hypothesis 3a

Hypothesis 2a Funding Hypothesis 2b Hypothesis 3b

Achieved
perceptions Early growth
funding
and behavior

differences between the men- and women-controlled businesses when it came to profits or
total sales turnover.
With the previous discussion, the following hypotheses have been developed:
Hypothesis 3a: Women entrepreneurs experience less early growth in their new
businesses compared to men.
Hypothesis 3b: The relationship between gender and early business growth is medi-
ated by the level of financial capital.
The hypotheses are summarized in the research model in Figure 1. Gender is assumed
to have an impact on funding perceptions and behaviors of the entrepreneur, the level of
funding achieved, as well as the early growth of the new business. Further, the association
between gender and achieved funding is assumed to be mediated by the perceptions and
behaviors related to funding. Finally, the association between gender and early business
growth is assumed to be mediated by the level of business funding raised.

Method

In this study, two rounds of data collection were carried out at two different points in
time. In a mail survey in 2002, we gathered information (collected from the new business
founders) on the independent and control variables. Approximately 19 months later,
telephone interviews were conducted concerning information about the dependent vari-
ables, invested financial capital, and sales turnover.
In the first round of data collection, the sampling frame consisted of entries in a
Norwegian business register, the Norwegian Central Coordinating Register for Legal
Entities. This is a comprehensive register that coordinates information existing in other
government registers, including (1) the register of employers, (2) the register of business
enterprises, and (3) the value added tax register. Four legal forms were included in the
sampling frame: sole proprietorships, partnerships with mutual responsibility, partner-
ships with shared responsibility, and unlisted limited liability companies. According to
Statistics Norway (2004), 98.6% of the businesses enrolled in the register in 2002 chose
one of these four legal forms. All new businesses that entered the business register during
weeks 21–24, 2002 (time 1) were approached. The business register provided lists con-
taining information regarding the new businesses. These lists were received in four rounds
1 week after the businesses had registered. A structured questionnaire was sent to the

September, 2006 673

businesses within 1 week after we received the lists. The questionnaire consisted mainly
of closed statements/questions and regarding format; 7-point scales were mostly applied.
In total, it consisted of 16 pages, and a test (using a sample of seven entrepreneurs)
indicated that the respondents would be able to answer the questionnaire in approximately
half an hour. In total, 3,121 businesses were approached; 126 of the mailings were
returned as unreachable. Of the remaining 2,995 questionnaires, we received 1,048, a
response rate of 35%. A response bias test revealed no significant differences between the
1,048 respondents and the nonrespondents with respect to legal form and geographical
location (county). Moreover, the sample did not differ significantly from the entire cohort
of businesses started in Norway in 2002 with regard to legal status or localization.
The follow-up interviews were carried out approximately 19 months after the initial
mailings (i.e., weeks 5–8, 2004, time 2). With respect to the telephone interview, which
was concerned with business outcomes, a short questionnaire was constructed (14 ques-
tions). It was tested by colleagues, and the results of the test indicated that it should not
take more than 3 minutes to answer the questions. A professional survey agency attempted
to contact 980 of the 1,048 businesses that responded to the mail survey. The businesses,
which (1) had extensive missing data in the mail questionnaire, (2) had deregistered from
the business register, or (3) where the contact person was not listed in any of the available
telephone directories were all excluded—68 in total. Among the 980 respondents, 275
persons were inaccessible, and 54 refused to participate, reducing the sample to a total of
651 businesses. Hence, valid responses constituted 66.4% of the 980 businesses contacted.
Further, businesses were excluded from the sample if (1) the respondent reported as not
being the founder of the business and/or (2) the businesses were not in operation in 2004.
In addition, complete data sets were used as a requirement, leaving 360 businesses for the
analysis of invested financial capital and 327 businesses for the analysis of sales turnover.
With regard to the sample of 360 respondents, 21.9% of the businesses were founded
by women (i.e., 79 women and 281 men). The business founder’s average age in 2002 was
38.2 years for women and 39 years for men. With regard to education level, 41% of the
women had at least 4 years at a university/college. The corresponding proportion of men
was 26%. Thus, this indicates that the women business founders seem generally to be
more likely to have attained high education, compared with men.
In order to check for the possibility of response bias, several tests were performed on
all 12 independent and control variables, as well as legal form and geographical location
(county).1 Only two significant differences (p ⬍ .01) between those included in the final
sample and nonrespondents were detected. Businesses in the final sample were slightly
more often team starts and had invested slightly more financial capital at registration. This
is probably due to the exclusion of failed businesses in the final sample. This might
indicate some bias in the final sample, but the magnitude of this problem does not seem
serious.

Measures

Early Business Growth. Sales turnover in the Norwegian currency (Norwegian krone
[NOK])2 was measured at the second round of data collection (time 2) and was used as

1. With regard to categorical variables, cross tabulation and chi-square tests were employed. With regard to
continuous variables, t-tests as well as nonparametric Mann–Whitney U-tests were employed.
2. 1 NOK = $0.15.

674 ENTREPRENEURSHIP THEORY and PRACTICE

the measure for early business growth. The variable was highly skewed. Therefore, it
was transformed by taking the logarithm of each response after adding a constant of
10.000.

Financial Capital. The respondents were at both times of data collection asked to state
the amount of currently invested financial capital (debt + equity) in the new business
(NOK). Adding these constitute the measures of total financial capital at times 1
(at registration) and 2 (19 months after). Both variables were highly skewed. They
were transformed by taking the logarithm of each response after adding a constant of
10.000.

Control Aversion. This was measured using three items inspired by Berggren, Olofson,
and Silver (2000): “New owners are favorable for the business”; “new owners renew and
develop the business”; and “the business prefers debts to external equity.” The items were
measured using a 7-point Likert scale where 1 = strongly disagree, 4 = neither agree nor
disagree, and 7 = strongly agree. The scores on the two first variables were reversed. The
three items were then averaged. Cronbach’s alpha = .622.

Perceived Requirements Funding. This was measured using nine items, the four first
items dealing with perceived requirements from banks, and the remaining five items
concerning requirements from equity suppliers: “Banks and other lenders make too strict
demands regarding security in form of mortgage/guarantees”; “banks and other lenders
make too strict judgments regarding risk”; “banks and other lenders demand too high rates
of interest”; “banks and other lenders make too strong demands regarding equity rate”;
“equity suppliers make too strict judgments regarding risk”; “equity suppliers make too
strict demands regarding profitability”; “equity suppliers focus too strongly on future sales
opportunities for equity shares”; “equity suppliers make too high demands for dividend”;
and “equity suppliers make too high demands regarding owners’ share in proportion to
invested capital.” The items were measured using a 7-point Likert scale where
1 = strongly disagree, 4 = neither agree nor disagree, and 7 = strongly agree. The nine
items were averaged. Cronbach’s alpha = .895.

Initiating Investors Relationships. These were measured using four items: “be able to
obtain sufficient funds for the founding,” “develop and maintain favorable relationships
with potential investors,” “develop relationships with key people who are connected to
capital sources,” and “identify potential sources of funding for investments.” The latter
three were adapted from De Noble, Jung, and Ehrlich (1999), while the first is new.
Respondents were asked to indicate their degree of confidence in performing the tasks
successfully on an 11-point scale, where 0 = no confidence at all, 5 = some confidence,
and 10 = complete confidence. Cronbach’s alpha = .912.

Perceived Environmental Munificence. This was measured using four items: “The busi-
ness’ industry may in general be characterized by high growth”; “banks and other sup-
pliers of loan capital are generally very interested in financing businesses like mine”;
“investors are generally very interested in financing businesses like mine”; and “in
general, investors would quite easily understand the technology used in my business.” The
first three were constructed based on Brown and Kirchhoff (1997), while the fourth is new.
The items were measured using a 7-point Likert scale where 1 = strongly disagree,
4 = neither agree nor disagree, and 7 = strongly agree. The four items were averaged.
Cronbach’s alpha = .734.

September, 2006 675

Applied Funding. This was measured using two items. The respondents were asked to
state the number of sources they had tried to raise debts and external equity, respectively.
Possible responses for both variables were 0–10 and more than 10. Responses on the two
questions were added, and since the variable was skewed, it was transformed by calcu-
lating the square root of each value.

Control Variables. Capital need, de novo start-up, start-up team, perceived environmental
dynamism, and industry (service) were used as control variables. To measure capital need,
the respondents were asked to state the amount of capital needed in the development of the
business during the first year after registration. The variable was highly skewed. There-
fore, it was transformed by taking the logarithm of each response after adding a constant
of 10.000. The respondents were asked to state whether the business was started from
scratch (value 1), or whether it was acquired, inherited, or otherwise a continuance of a
prior business (value 0) to indicate de novo businesses. The respondents were asked to
state whether they alone were responsible for the founding of the business (value 0), or
whether they started it with other partners (value 1), to measure the existence of a start-up
team. Perceived environmental dynamism was measured using four items: “The rate at
which products/services are getting obsolete in the industry is very slow”; “actions of
competitors are quite easy to predict”; “demand and consumer’s tastes are fairly easy to
forecast”; and “the product/service technology is not subject to very much change and is
well established.” The items were adopted from Miller and Friesen (1982). The items were
measured using a 7-point Likert scale where 1 = strongly disagree, 4 = neither agree nor
disagree, and 7 = strongly agree. The four items were reversed and averaged. Cronbach’s
alpha = .623. Industry was operationalized as a dummy variable where businesses in the
service sector were denoted a value of “1” otherwise “0.”
In Table 1, descriptive statistics, correlations, and Variance Inflation Factor values
(VIF values) for the included variables are shown. Although the VIF values do not indicate
that multicollinearity will seriously distort the regression model, inspection of the corre-
lation matrix reveals that capital at registration is positively and significantly associated
with capital at time 2 (r = .71, statistically significant at the .01 level). Hence, this potential
problem needs to be considered when testing hypothesis 3b.

Results

Bivariate t-tests were used to explore potential differences between male and female
entrepreneurs when it comes to funding perceptions and behavior (Table 2). No statisti-
cally significant differences were detected related to men and women’s perception of
environmental dynamism, control aversion, perception of the requirements of banks and
equity suppliers, their investor relations, nor their perception of entrepreneurial munifi-
cence in the environment. Moreover, there were no significant differences between the
genders regarding the extent to which they applied for loans or external equity.
However, the results in Table 2 show that there are statistically significant differences
between the amount of financial capital female and male entrepreneurs use at start-up.
Women have achieved significantly lower amounts of total financial capital both at the
time of registration (time 1) and 19 months later (time 2). These results appear in spite of
no significant difference when it comes to the amount of financial capital they report that
they need to develop the business. These results support hypothesis 1. However, there is
no support for hypothesis 2a.

676 ENTREPRENEURSHIP THEORY and PRACTICE

 Table 1

September, 2006
Descriptive Statistics: Mean, Standard Deviation, Correlations, and Variance Inflation Factor Values (VIF Values)

Mean SD 1 2 3 4 5 6 7 8 9 10 11 12 13 VIF 1 VIF 2

1 Capital need (ln) 10.03 1.51 1.00 1.222 1.127

2 De novo 0.89 0.31 .032 1.00 1.115 1.136
3 Start-up team 0.25 0.43 .094 -.136* 1.00 1.158 1.126
4 Perceived environmental 3.50 1.19 .036 .053 -.041 1.00 1.032 1.021
dynamism
5 Industry (service) .66 .47 .041 .122* -.135* .035 1.00 1.061 1.121
6 Gender (women) .19 .39 -.051 .065 -.047 -.032 .170** 1.00 1.052 1.075
7 Control aversion 3.59 1.42 .130* -.251** .188** -.017 -.084 -.110 1.00 1.137
8 Perceived requirements 4.47 .96 .121* -.024 .043 -.054 -.120* -.069 .112* 1.00 1.054
funding
9 Investor relationships 6.80 2.22 .025 -.109 .136* -.053 -.065 -.020 .124* .103 1.00 1.118
10 Perceived environmental 3.54 1.12 .120* .014 .144* -.098 -.023 -.101 .216** .026 .275** 1.00 1.161
munificence
11 Applied funding (square .57 .82 .390** -.177** .292** -.082 -.097 -.004 .250** .137* .095 .091 1.00 1.356
root)
12 Capital at registration 11.15 1.72 .250** -.311** .325** -.078 -.224** -.177** .271** .152** .136* .151** .560** 1.00 2.239
(ln)
13 Capital time 2 (ln) 11.64 1.74 .280** -.233** .253** -.100 -.263** -.210** .225** .096 .140* .117* .451** .714** 1.00 2.193
14 Turnover time 2 (ln) 12.44 1.86 .101 -.273** .267** -.075 -.180** -.178** .243** .086 .104 .072 .340** .480** .580**

N = 310, 251 men and 59 women.

* p ⬍ .05, ** p ⬍ .01.
SD, standard deviation.

677
 Table 2

Differences between Means and t-Value

Men Women t-Value

Capital need (ln) 10.11 9.88 1.005

Perceived environmental dynamism 3.52 3.44 .493
Control aversion 3.67 3.28 1.960
Perceived requirements funding 4.49 4.33 1.157
Investor relationships 6.78 6.75 .114
Perceived environmental munificence 3.58 3.34 1.565
Applied funding (square root) .59 .59 -.032
Capital at registration (ln) 11.32 10.57 3.072**
Capital time 2 (ln) 11.84 11.00 3.628**
Turnover time 2 (ln) 12.61 11.81 3.021**

N = 318, 257 men and 61 women.

** p ⬍ .01.
Nonparametric (Mann–Whitney U) tests were also performed
regarding the same variables. The results obtained from this analysis
were practically identical.

A linear regression model was used to test hypothesis 2b, which suggested that the
relationship between gender and the raised amount of financial capital is mediated by the
entrepreneur’s funding perceptions and behavior (Table 3).
Model 1 includes control variables and gender to explain the amount of financial
capital raised at time 2. The model is statistically significant with an adjusted R2 of .197.
The perceived environmental dynamism variable was not significantly associated with the
dependent variable. Reported capital need, de novo businesses, the presence of a start-up
team, and industry are all statistically significant in the model, indicating as expected that
higher amounts of capital are raised by acquisitive entries, team starts, in situations where
the capital need is higher, and in industries other than the service sector. Further, women
raise significantly lower amounts of financial capital than men.
In model 2, the measures of funding perceptions and behavior were included, increas-
ing the adjusted R2 to .280. The only additional variable, which showed a significant effect
in the model, was the extent to which the entrepreneurs had applied for funding (loans and
equity). The number of applications for loans and equity is associated with the amount of
capital obtained, indicating that a higher level of activity in funding pays off. Neverthe-
less, gender is still strongly significant in the model. The result that women are able to
obtain less financial capital than men holds also when controlling for funding perceptions
and behavior. These results give no support for our hypothesis 2b, while hypothesis 1
receives support also in the multivariate analysis.
Are differences in obtained financial capital associated with differences in early
business growth? A hierarchical linear regression procedure was used to test hypotheses
3a and 3b. The results are reported in Table 4.
Model 1 includes control variables and gender as independent variables, and sales
turnover 19 months after registration (ln) as the dependent variable, resulting in a sig-
nificant model with an adjusted R2 of .152. All control variables except perceived envi-
ronmental dynamism are statistically significant in the model, however, with capital need
and industry only at the .1 level. Higher capital need, acquisitive entries, team starts, and

678 ENTREPRENEURSHIP THEORY and PRACTICE

 Table 3

Hierarchical Linear Regression: Financial

Capital at Time 2 (ln) as Dependent
Variable

Model 1 Model 2

Control variables
Capital need .254*** .129***
De novo -.182*** -.124***
Start-up team .178*** .088*
Perceived environmental -.038 -.026
dynamism
Industry (service) -.162*** -.140***
Gender
Women -.127*** -.151***
Funding perceptions and behaviour
Control aversion .036
Perceived requirements .000
funding
Investor relationships .034
Perceived environmental -.010
munificence
Applied funding .336***
Model characteristics
F-value 15.694*** 13.675***
R2 .211 .302
Adjusted R2 .197 .280
D R2 .091
D F-value 9.094***

N = 360, 281 men and 79 women.

* p ⬍ .10, *** p ⬍ .01.

businesses in sectors other than service are associated with higher early business growth.
Moreover, women’s businesses obtain significantly lower sales turnover than men’s busi-
nesses. In the second model, we included the amount of financial capital obtained by the
time of registration, increasing the adjusted R2 to .264. The amount of financial capital at
the time of business registration is strongly associated with sales turnover 19 months
later. Moreover, the inclusion of this variable reduces the impact of gender in the model.
In the third model, the amount of obtained capital at time 2 is added to the model,
increasing the adjusted R2 to .368. This variable is highly significant in the model, which
strengthens the finding from model 2. Because of correlation between the amounts of
financial capital at the two points in time, the impact of financial capital at time of
registration is weakened in this model. Interestingly, the impact of gender is no longer
significant in this model.3 These findings indicate that when controlling for the level of

3. As noted earlier, the correlation between financial capital at the time of registration and financial capital at
time 2 is high (r = 0.71). In order to explore whether collinearity distorts the results, a regression analysis was
performed in which the variable “financial capital at time of registration” was excluded from the analysis.
While not reported in Table 4, the results obtained from the analysis were practically identical with those
reported in model 3. The only differences with regard to statistical significance levels refer to the control

September, 2006 679

 Table 4

Hierarchical Linear Regression: Turnover Time 2

(ln) as Dependent Variable

Model 1 Model 2 Model 3

Control variables
Capital need .092* .003 -.060
De novo -.226*** -.121** -.113**
Start-up team .192*** .101** .092*
Perceived environmental -.069 -0.41 -.017
dynamism
Industry (service) -.098* -.042 .007
Gender
Women -.130** -.088* -.050
Received financial capital
Financial capital at registration .393*** .092
Financial capital time 2 .478***
Model characteristics
F-value 10.718*** 17.715*** 24.776***
R2 .167 .280 .384
Adjusted R2 .152 .264 .368
D R2 .113 .104
D F-value 49.872*** 53.713***

N = 327, 263 men and 64 women.

* p ⬍ .10, ** p ⬍ .05, *** p ⬍ .01.

financial capital achieved, there is no statistical significant differences between men and
women founders with respect to the early growth in sales turnover for their new busi-
nesses. Hence, hypotheses 3a and 3b are both supported from our findings.

Discussion and Conclusions

Several studies have provided evidence that women-led ventures grow less than
men-led ventures (Chaganti & Parasuraman, 1996; Cliff, 1998). This is also supported by
this study. The Diana group asserted that “There is a substantial funding gap that limits
women’s opportunities to grow their ventures aggressively and to lead high-value firms”
(Brush et al., 2002, p. 1). This study has investigated funding behavior and obtained
funding among men and women business founders, and how this is associated with early
growth of newly founded businesses. The results support the Diana group’s claim. The
findings indicate that gender makes an important difference when it comes to the amount
of loan and equity capital raised to develop the new business. The effect of gender remains
strong also when controlled for potential differences in funding perceptions and behavior.
In fact, we detect few differences between men and women when it comes to their

variables. That is, the control variable de novo reached a 0.01 level of statistical significance, and the variable
“start-up team” reached a 0.05 level of statistical significance.

680 ENTREPRENEURSHIP THEORY and PRACTICE

perceptions and behaviors related to obtaining financial resources for developing their
businesses.
Further, this study investigates whether the differences in achieved funding have
consequences for early growth of the new businesses. While women are found to grow
their businesses less during the first 19 months after registration, the gender difference
disappear when controlling for the amount of financial capital invested in their new
businesses. This finding indicates that the higher amount of financial capital men procure
is one important reason why men-led ventures grow more than women-led ventures. There
seem to be a funding gap for women restricting the growth of women’s new businesses.
The fact that women raise smaller amounts of funding for their new businesses than
their male counterparts may have different and partially overlapping explanations. Some
studies have found that women have lower ambitions when it comes to business growth
than men (Cliff, 1998; Isaksen & Kolvereid, 2005). One could therefore expect differ-
ences in the need for funding. Further, the capital need of new ventures clearly differs
between industries. As women more often than men start their businesses within service
industries, they may need less financial capital to get started. Some studies have asserted
that women and men, due to different education, work experience, and life experiences,
enter entrepreneurship in different ways. It is suggested that women are more careful
when they start new businesses, starting small and developing their businesses slowly.
Also women’s attachment to the labor market, marked by part-time employment, could be
brought forward into self-employment, implying that women start part-time businesses
and therefore start small and stay small.
Nevertheless, the findings in this study remain strong even when controlling for the
perceived level of financial capital needed to develop the business and for industry. This
indicates that there are other reasons for the differences in obtained funding than varia-
tions in capital requirements. Similar to the Diana Project, studies in Norway have found
that very few women occupy decision-making positions in the venture capital industry
(Foss & Ljunggren, 2006). The dominance of men in the supply side of the finance market
may have consequences for profiles, strategies, and means of this sector, including the
industries and types of businesses that are pursued, criteria for project evaluation, infor-
mation strategies, and so forth. Even if gender discrimination is difficult to prove explic-
itly, gender (as social construction) has undoubtedly an impact (Carter et al., 2006). Last,
but not least the fact that women in general possess less wealth and achieve less income
than men will impact on their possibility to raise capital for business start-up and growth.
In a study from Sweden, Nykvist (2005) found that lack of liquid assets is an important
constraint hindering people to become entrepreneurs. As financial wealth is unevenly
distributed among the genders, this constraint will concern women more than men.
Supply-side as well as demand-side issues should be explored in order to investigate the
underlying factors leading to the apparent funding gap for women entrepreneurs.
This study has investigated financial capital and business growth in an early stage of
a business life cycle—from business registration to 19 months after. It remains to be seen
whether the detected differences will continue also at later stages. Further, in a represen-
tative sample of new business start-ups as utilized here, only a few of the cases will ever
become high-growth businesses. Future studies should explore whether there are similar
differences, for instance, among new businesses in high-growth industries. Moreover,
industry specific studies could bring more detailed understanding to the processes under-
lying the gender differences with respect to new business funding.
In spite of its limitations, the results from this study have several important implica-
tions. For researchers, these results indicate that there is a gender issue of new business
financing that cannot necessarily be explained by differences in funding perceptions and

September, 2006 681

behaviors. Structural barriers have to be taken into consideration; also, the theoretical
perspectives applied regarding gender will probably influence the understanding of which
structural barriers are present. Further studies are needed into the gendered processes of
new business financing. Moreover, the results point toward the importance of increasing
our knowledge about these processes, since restrictions in financial capital seem to limit
the early growth of women’s businesses.
The study aimed at developing and testing a model regarding business financing,
undercapitalization, growth, and gender on a representative longitudinal sample. A refine-
ment of the model to separate between different types of funding as well as combinations
of these will further increase our knowledge. According to Myer’s Pecking-Order hypoth-
esis, different types of funding are related in a certain pattern. Financing of business
projects will be undertaken first by using internal resources, then debt, and finally, external
equity (Verheul & Thurik, 2001). When women have less access to internal resources, i.e.,
personal financial capital, than men, this may have an impact on their ability to raise debt
and external equity as the next steps. Future research should investigate to which extent
the funding gap of women entrepreneurs is a result of lower personal wealth. There is a
need for studies on business funding including structural issues related to the gender
division of labor, gender division of industries, as well as gender differences when it
comes to salaries, part-time employment, and domestic responsibilities.
Even though Norway is often considered one of the leading countries when it comes
to gender equality, marked gender differences are found related to new business finance.
Further, the results of this study indicate that this has consequences for new business
growth of men- and women-led ventures. These results are consistent with findings from
Scotland (Carter & Rosa, 1998), Australia (Watson, 2002), and the Netherlands (Verheul
& Thurik, 2001). Future studies in other national contexts are needed to explore, for
instance, the impact of national equality strategies on these issues. While Norwegian and
Scandinavian equality policies have a strong focus on revaluing traditional women-
dominated spheres such as domestic work and child care, equality policies in, for instance,
the United States have put more attention to increasing the number of women in man-
agement positions and securing equality in bank funding (OECD, 2004). Such strategies
may give different results when it comes to new business financing and growth in men-
and women-led ventures. Research on the relationship between national equality policies
and achievements in the area of women entrepreneurship is warranted.
For policy makers the findings give important insights into the hindrances of growth
of women-led ventures. Efforts to ease women founders’ access to financial capital seem
to be important in this aspect. Bankers, venture capitalists, and others on the supply side
of business funding should be particularly aware of the gender aspects of their activities,
since they might miss out on potential good business projects as they, to a lesser extent,
finance new businesses put forward by women than those put forward by men. They may
need to screen specifically for women-owned businesses with a growth potential, and to
evaluate the financial capital need in these businesses. Support schemes directed toward
growth in women-led businesses may be needed to unleash the growth potential in these
businesses. Governmental support agencies should prioritize women-owned businesses
when giving financial support. Further, policy makers should consider putting stronger
demands on private as well as governmental finance institutions with regard to reporting
the share of women-owned businesses they finance. This may raise the consciousness on
this issue. For women entrepreneurs, the findings point to the need to pay special attention
to acquiring sufficient financial resources to their businesses to be able to reach desired
levels of business growth. It may seem that women need to put in even more efforts on this
issue than men.

682 ENTREPRENEURSHIP THEORY and PRACTICE

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Gry Agnete Alsos is senior researcher at the Nordland Research Institute, N-8049 Bodø, Norway.

Espen John Isaksen is associate professor at the Bodø Graduate School of Business, N-8049 Bodø, Norway.

Elisabet Ljunggren is senior researcher at the Nordland Research Institute, N-8049 Bodø, Norway

An earlier version was presented at the 2005 Babson Kauffman Entrepreneurship Research Conference and
appears in Frontiers of Entrepreneurship Research 2005. We acknowledge constructive and helpful comments
from two blind reviewers as well as the special issue editors.

686 ENTREPRENEURSHIP THEORY and PRACTICE

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