Recordings of VCs talking about investments shows why women founders have such a hard time

Ladies last.
Ladies last.
Image: Marko Djurica/Reuters)
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Founders pitching venture capitalists rarely get the whole story. Rejections are almost never a firm “no.” Instead, replies are couched in flattery (“I really like the progress you’ve made“) or walk the line of rejection without ever crossing it (“Let us know when you’re raising your Series A”).  It’s seldom that someone outside investors’ inner circle gets an unvarnished look at deliberations.

Researchers at Sweden’s Luleå University of Technology got that view. It’s not pretty. In a peer-reviewed study published in Entrepreneurship Theory and Practice this February, the researchers observed seven Swedish government venture capitalists (two women and five men) deliberate over 125 venture pitches. Researchers recorded two years of private, face-to-face discussions and then analyzed the 210 pages of transcripts. The applicant pool was 79% male and 21% female with comparable levels of experience and education.

The researchers were studying the reasons for a global conundrum: why does most startup funding go to men? In Sweden, one of the world’s most egalitarian societies, one-third of Swedish businesses are owned and run by women, yet only 13% to 18% of government venture funding goes to women-owned firms. The pattern is global.

Despite financiers’ insistence on their own impartiality (“It has never happened that I have had two applications and chosen to approve one of them because it is a woman or a man,” said one VC in the study), there were clear gender gaps in who received funding, and the reasoning behind rejections. The study found men enjoyed a 62% chance of receiving funds, while women were only selected 48% of the time. Men also received 52% of the money requested, while women received just a quarter.

Even more telling was language used by financiers. Their words betrayed vastly different ways that females and males were evaluated. Men were almost universally referred to as ”entrepreneurs,” “innovators,” “business owners,” and ”inventors,” while women were predominantly referred to with the pronoun “she” (or “business owners” in a few cases). Women were also described in predominately negative terms (56% of the time) that focused on social context rather than individuals’ merit, using phrases such as ”needing support, lacking established networks, and detailing women’s dependency.” Comments on physical appearance were also directed primarily at women (two applicants were called ”sweeties”). Phrases were all translated from Swedish to English.

Men, of course, were not all positively reviewed either. Negative comments (28% of the attributes in the discussions) portrayed them as troublemakers, arrogant, threatening, dishonest, and even “wicked,” but overall those criticisms tended to be paired with more positive traits. Female entrepreneurs experienced the opposite pattern, with praise often placed next to negative comments in the same sentence.

All this seems puzzling as the authors note prior research has detected no difference between men’s and women’s ability to run a business, or gender-specific traits that would limit their performance as entrepreneurs. But ingrained gender stereotypes appear to profoundly shape investment decisions by coloring how investors see individuals, and even the exact same characteristic (such as aggression) when expressed by different genders. The authors say a few studies have failed to show gender bias for some funding, and their study only observes one group of government-affiliated investors in Europe, but a pattern of discrimination against women (p 15; pdf) emerges at every level of finance.

The key to fixing this is making “structures of inequality” visible, says study co-author and entrepreneurship researcher Jeaneth Johansson. The authors report that the Swedish government, after reviewing the data, adjusted their regulations to ensure a more equitable distribution of venture funds. “People typically want equality and to treat women and men equally,” she wrote by email. “Visualizing structures enables financiers and others to work with the issue and to become aware of what they base their decision on. So I do absolute (sic) believe that it will be better.”