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Why does so little venture capital go to women? This study finds the problem runs deep, but offers tactic to counter it

June 27, 2017

For more information, contact: Ben Haimowitz , (718) 398-7642,

Some new research goes a long way toward penetrating the dark cloud of suspected gender bias that has persistently enveloped entrepreneurial funding – a persistence hardly surprising considering that in the world's richest economy, the United States, female-founded firms constitute nearly 40% of all privately held companies but attract only 2% of the country's venture capital.

What accounts for this extreme disparity? As the new research acknowledges, "the underlying mechanism [has] been widely contested,” with some explanations blaming outright gender bias among venture capitalists and others contending that women simply seek and thus receive less capital for their ventures. In this latter view, as the new study explains, women are seen as "content to start modest 'lifestyle' businesses...that cater to low-growth ‘female-friendly’ industries," a preference "driven by a perceived need to balance the competing demands of work and family."

The problem is a lot more subtle and tricky than either of these explanations suggests, concludes the study, to be presented at the forthcoming annual meeting of the Academy of Management (Atlanta, Aug. 4-8) and to be published later in the Academy of Management Journal. Yet, deep and subtle as the problem may be, it is far from insoluble; indeed, female entrepreneurs can do a lot on their own to mitigate it, the authors contend.

The research, by Dana Kanze, Mark A. Conley, and E. Tory Higgins of Columbia University and Laura Huang of the University of Pennsylvania, seeks answers from what is arguably the world's most prestigious of startup competitions, TechCrunch Disrupt, held annually in major cities around the world. Some of the world's leading venture capitalists have served as judges at these competitions since their inauguration in 2009, and startups that have presented there (among them such industry darlings as Dropbox, Fitbit, and Mint) have raised in the aggregate about $7 billion in venture funding over the course of their lifetimes.

Through an analysis of the interactions between venture capitalists and entrepreneurs at these events, the study reveals that, yes, a kind of bias comes into play in the extreme funding disparity between male and female entrepreneurs. But it is "one that is far more deeply ingrained and insidious than direct and explicit" and, in fact, is essentially unconscious. Moreover, far from being exclusive to men, it prevails equally among male and female venture capitalists.

The bias is summed up in the paper’s title: "We Ask Men to Win and Women Not to Lose." Thus, while the questions venture capitalists pose to female entrepreneurs tend to focus on the potential for loss (for example, "How do you prevent people from gaming your game?”), questions to male entrepreneurs tend to focus on the potential for gain (for example, "Where do you want to get if everything is fine...what is your aspiration?").

In the words of the study's co-authors, “Female entrepreneurs are implicitly expected to prove that they can execute a safe return for the investor, whereas male entrepreneurs are instead expected to show the opportunity can grow…Entrepreneurs intuitively match their responses to the regulatory focus of the investor questions asked of them…prompting female respondents to position their startups as ‘playing not to lose’ and male respondents to position themselves as ‘playing to win.’”

And the latter emphasis (what scholars call “promotion-focused”) is considerably more attractive to potential investors than the former (“prevention-focused”), the researchers go on to show.

Unfortunately, too, “both male and female venture capitalists display implicit bias, holding men and women to different standards, [which] implies that the funding disparity cannot be corrected by merely ensuring that more female VCs are in a position to evaluate investment opportunities.”

The depth of this bias notwithstanding, there is, the authors write, a silver lining. “Entrepreneurs can respond to prevention-focused questions with a promotion rather than a prevention focus…For example, when asked a question about defending market share in a competitive market, the entrepreneur [whether male or female] can respond by referencing the startup’s unique ability to gain advantage in a sizable, fast-growing market.”

The researchers’ findings derive from two separate studies. The first draws upon data involving 189 startups that presented at the New York competitions organized by TechCrunch Disrupt from 2010 through 2016. The authors 1) gained access to the complete video footage including the six minutes of Q&A between each company’s founder and a panel of venture capitalists; 2) transcribed it all into 64,855 words of text; 3) used two complementary methods to determine the balance between promotion focus and prevention focus in company-panel interactions; and 4) analyzed the relationship of this balance to companies’ funding achievements over time.

As the authors explain, these data provide “a rarely available window into the typical discussions investors have with entrepreneurs across board rooms, online funding platforms, and competitions every day. As this Q&A is emblematic of the discussions startups have over the entire course of their lifetimes, it makes sense to likewise link these discussions with the total funds raised by these startups over the course of their lifetimes.”

They add that only startups with a demonstrated need for venture capital are accepted into the TechCrunch Disrupt competition, which addresses the commonly offered claim that female entrepreneurs raise less money because they simply found companies with lower capital needs. The authors statistically confirmed that the male- and female-led startups had comparable capital needs. Their analysis also controlled for such other key factors in venture funding as quality scores (as provided by the startup platform AngelList) and founders’ past experience.

Results of this unique field study reveal “a significant main effect of gender on funding in which startups led by male entrepreneurs…raised an average of $17.1 million per startup, 5.14 times the average funds raised by female-led startups of $3.3 million.” Further, “male entrepreneurs are more likely to be asked promotion-focused questions, whereas female entrepreneurs are more likely to be asked prevention-focused questions…Comparing dollars raised [over company lifetimes], we note that startups raised an average of $16.8 million when investors asked predominantly promotion questions, 7.21 times more funding than the average $2.3 million raised by those asked predominantly prevention questions.”

Columbia’s Ms. Kanze adds: “The study finds that the prevalence of prevention-focused questions fully explains the effect of entrepreneur gender on funding outcomes."

To confirm the appeal of promotion focus over prevention focus to investors, the authors conducted an online experiment in which providers of startup funding (so-called angel investors and seed investors) were played audiotapes of Q&A similar to interactions at TechCrunch Disrupt and were asked to allot hypothetical dollars based on what they heard. Taped interactions were equally divided between prevention- and promotion-focused questions, and each group was further divided between prevention- and promotion-focused answers. When entrepreneurs were asked prevention-focused questions but provided promotion-focused answers, angel investors allocated them an average of $81,113, which was 1.55 times the allocation of $52,369 when prevention questions were followed by prevention answers. Among seed investors the differential was even more dramatic – $96,321 to $55,377.

The combination of field and experimental findings leads Ms. Kanze to agree when asked whether entrepreneurs might be well-advised to take a page from the Q&A on view every Sunday in television newsmaker interviews. “Moderators on those shows are paid to ask tough questions, but seasoned politicians are no less adept at providing the answers that serve their respective platforms,” she observes. “Framing your responses with a promotion focus is akin to hitting your talking points in politics.”

“To be clear,” she adds, “this is not to suggest that entrepreneurs should dodge the prevention questions of venture capitalists the way politicians dodge aggressive questions of journalists. But our findings are quite definitive that promotion is a lot more attractive than prevention to investors. Entrepreneurs – whether men or women – likely do well to keep that in mind, staying on topic while weaving promotion into their responses.”

The study, “We Ask Men to Win and Women Not to Lose: Closing the Gender Gap in Startup Funding,” will be among thousands of research reports presented at the 2,150 sessions of the Academy of Management annual meeting in Atlanta from August 4th through 8th. Founded in 1936, the Academy of Management is the largest organization in the world devoted to management research and teaching. It has about 20,000 members in 128 countries. This year's annual meeting will draw some 12,000 scholars and practitioners for sessions on a host of subjects relating to business strategy, organizational behavior, corporate governance, careers, human resources, technology development, and other management-related topics.

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