A recent report from Pitch Book indicates that the investment outlook for women entrepreneurs is even more bleak than many imagined. Despite efforts to bring awareness to the issue as well as the formation of funds and groups dedicated to changing this ratio, the stark reality is that in 2017, startups founded by women only received about 2.2% of all venture capital invested in the United States – this, in spite of the number of women-owned businesses doubling over the past decade.
While myriad factors have been attributed to the gap in funding, part of the blame can be attributed to the lack of gender diversity within venture capital firms; only 7% of partners at top firms are women.
But new research shows that women investors can sometimes be just as biased against female founders as their male counterparts. In one study, both male and female investors viewed women entrepreneurs as more likely to fail and asked female founders prevention-focused questions more often than men, who were asked more promotion-focused questions.
I know from my own personal experience while raising APPCityLife’s seed round that the questions I was asked were far different than the ones I wanted to answer. I was frequently asked how our GovTech startup could reach sustainability so that the company would never need more funding, when what I wanted to share was my vision for a global platform that could create cutting edge technology tools without needing to know how to code where solutions could be developed and shared by cities across the globe to quickly scale access to better tools for communities everywhere.
The vision – and goals – are very different when asked how one plans to merely survive versus how one plans to scale. It’s almost counterintuitive to even invest in something where the goal of the founder is to play it safe rather than push for scale.
And yet, according to research, it is a far more common question for female founders than for men.
It would be interesting to know whether that question was posed by early investors to any of the founding teams of companies who have become today’s top unicorns in the industry – who, by the way, are mostly male.
By failing to ask growth-related questions to women who are pitching, investors are failing to identify excellent opportunities where they could participate in the growth of tomorrow’s unicorn.
But women who are launching companies also experience bias when it comes to assessing whether a founder has the proper experience or mindset to be a successful founder.
I recently hosted a fireside chat with Arlan Hamilton, the founder of Backstage Capital and an outspoken champion of underserved founders due to race, gender or sexual orientation. During our conversation, she shared her views on work experience that is often misinterpreted by conventional investors.
“I wouldn’t see any alarm bells at all in a founder who was a stay at home mom working from home. What I would see is someone capable of coping within solitary, stressful situations and managing their own time. And if they were also doing work from home, I would see that as someone who was creative and capable of multitasking to pursue their passions. Those would all be positives for me.”
When investors focus on work experience instead of character traits, they often fail to identify women who have the potential to become visionary, powerful leaders capable of growing a startup to a successful exit.
Because the majority of founders that venture capitalists work with are male, simply by default since men receive 98% of all investment, it can also skew the way investors view leadership skills. One study of 3,000 managers concluded that women are better managers than men and better suited for leadership, yet their leadership style can often be misinterpreted as more passive or less knowledgeable. As a gender, women are better at communicating, innovating, supporting and goal-setting. But the very traits that allow women to excel at leadership and their teams to thrive can also result in women being perceived as less qualified or capable.
When investors are evaluating women founders by comparing them to successful male founders, they are likely to miss the signs of strong leadership skills.
Women are quite capable of imagining, launching, and growing successful startups, but it will take investors who are willing to set aside their own conventional wisdom to adequately fund bold women founders who can help create the next generation of global, game-changing unicorn companies.