Investor biases widen the startup funding gender gap, men secure more funds than women
BRIARCLIFF MANOR, N.Y., April 26, 2018 / PRNewswire — The Academy of Management, the largest global association devoted to management and organization research, published a new study that found tech investors exhibit significant gender bias when evaluating prospective companies to invest in.
The study “We Ask Men to Win & Women Not to Lose: Closing the Gender Gap in Startup Funding” was written by Dana Kanze of Columbia Business School, Laura Huang of Harvard Business School, Mark A. Conley of Columbia University and E. Tory Higgins of Columbia University and published in the April edition of the Academy of Management Journal.
The research consists of two studies, a field study and an experiment. The field study analyzed seven years of startup funding competitions, comprising 189 entrepreneurs and 140 investors. The researchers found 67 percent of the questions investors asked male entrepreneurs were promotion-focused questions about the potential gains of the startup and resulted in higher levels of financing. Meanwhile, 66 percent of the questions posed to female entrepreneurs were prevention-focused inquiries about averting potential losses, which resulted in lower financing levels.
The researchers found startups raised an average of $16.8 million when investors asked entrepreneurs predominantly promotion questions, more than seven times more funding than the average $2.3 million raised by those asked predominantly prevention questions. The authors also conducted an experiment on 194 angel investors and 106 laypeople. In a controlled environment, this experiment demonstrated that investors allocated twice as much funding to startups asked promotion questions rather than prevention questions.
Both studies revealed that despite the gender bias exhibited by investors, disadvantaged entrepreneurs can combat prevention-focused questions with promotion-focused responses to significantly increase funding.
“In the near-term, we look forward to educating entrepreneurs on the importance of switching focus—by responding to prevention questions with promotion answers—to garner higher amounts of funding for their startups,” said Kanze. “Over the longer-term, we hope our study begins to chip away at the glass ceiling in startup funding by fostering more consciousness of the issue among the investor community,” said Kanze.