The gender imbalance in Silicon Valley is well documented. US tech companies are so dominated by men in large part because the vast majority of investment venture capital —nearly 98%— flows to firms founded by men.
Women are the majority owners of 38% of all US business, so it’s not a question of a lack of entrepreneurial energy. They’re consistently passed over by venture capitalists because investors are looking for reasons why they will fail, and not why they’ll succeed, according to a new study.
When questioned by investors in pitch meetings, women are typically asked how they will prevent losses. Men, by contrast, are more likely to be asked about their company’s potential, according to a paper titled “We Ask Men to Win and Women Not to Lose,” to be published by the Academy of Management Journal. And venture capitalists are more likely to invest when they’re excited about a startup’s potential, not when they’re focused on minimizing its loss.
Researchers from Columbia University and the University of Pennsylvania used voice-recognition software to analyze video-taped conversations between investors and entrepreneurs representing 189 startups, at six annual TechCrunch Disrupt New York City events, from 2010 to 2016. (Companies competing for funding at Disrupt have included Zenefits, Fitbit, Mint and the fictional Pied Piper, on Silicon Valley).
Men would be asked questions about their company’s promise along the lines of “Where do you want to get if everything is fine…what is your aspiration?” compared to the sort of loss-prevention questions posed to women like “How long will it take for you to break even?” The disparity is stark: Two thirds of the questions asked to men were focused on their companies’ potential, while women received the same percentage of questions about how their companies would protect investors.
Startups at the Disrupt events led by men raised an average of $17.1 million, more than five times the average $3.3 million raised by women-led startups. The researchers controlled for factors like the companies’ funding needs, the experience of the founders, and the quality of the project, based on a third-party scoring system from AngelList that judges their likelihood of success.
To combat the bias, the researchers recommend that female founders stick to talking points about potential, even when asked questions about loss. In a related study, they showed investors segments of the video-taped Disrupt questions and answers, and asked how much they would invest. When founders parried questions about how they would prevent loss with answers about their company’s potential, investors offered an average of $96,321, compared to $55,377 when they heard answers that focused on preventing losses.
In other words, female founders can push back against venture-capital bias by selling investors on their companies’ potential, no matter what questions they’re asked.