Traders miss alternatives in ladies’s startups, research finds
Investors often say they want to diversify their portfolios. But they can be missing opportunity to invest in the next big femtech because of the biased questions women entrepreneurs are asked.
Venture capital firms question female-led and male-led startups differently, according to a Columbia University and Harvard Business School study that analyzed transcripts and video recordings of startup funding competitions with nearly 200 companies from 2010 to 2016. .
The different lines of questioning tend to put women on the defensivewhile giving men opportunities to discuss their vision for the company, which attracts more funding.
Ultimately, this hurts investors because they could be missing out on great ideas in fast-growing industries like femtech.
Female founders are the driving force behind startups tackling maternal and menstrual health, fertility, menopause and contraception, according to a McKinsey consultancy report. On many metrics, even financial ones, female-led ventures can outperform male-led ventures.
The number of women-owned businesses has increased dramatically in just a few years. In 2021, women led 49% of newly created ventures – well up from 28% in 2019, according to a study by the Gusto platform.
The researchers found that when women launch new ventures, investors tend to express concerns that they might fail, with questions such as “What guarantees do you have against this?” or “are customers coming back?”
But when men are at the forefront, investors seem more interested in how they are going to grow and succeed, asking, for example, “where do you want to go if all is well?” or “how do you want to attract customers?”
In other words, the questions typically put women in a position to champion their ventures – a stance that is often unattractive to funders – but ask men to demonstrate vision and optimism, which attracts investment.
Women’s startups receive less investment
And who received the most funding? Men🇧🇷 When investors mostly asked about growth, earnings and aspirations, startups raised about 7.21 times more investment than companies that received questions focused on threats and potential losses.
And it’s not just men who ask biased questions; women are just as likely to question proposals from male and female founders. In a study from Sweden, Finland and Switzerland, researchers found that the pattern was especially evident among entrepreneurs who signaled risk-taking and competitiveness – a hallmark of an entrepreneurial mindset.
When investors discussed proposals from female entrepreneurs who presented themselves as risk takers, they tended to express concerns about potential losses. But when they deliberated over proposals from male founders who were equally competitive, their discussions turned more to potential gains, not fear of loss.
How to eliminate gender bias
Investors who want to more equitably finance the most promising ventures can find inspiration in orchestras. The use of screens at auditions to visually separate candidates from judges has helped increase the percentage of female musicians in major US orchestras, according to a study by economists at Harvard and Princeton. The screen makes it virtually impossible for the jury to know the candidate’s gender.
Investors may also make written funding requests anonymous. Blind pitch competitions can also be more difficult, but curtains, videoconferencing tools and voice changer apps can provide opportunities to do this creatively.
Awareness can also help change behaviors. Investors can become more aware of gender bias checking their assessments of startup funding decisions with tools that help detect bias in texts.
They could also apply interventions used by human resource professionals. Structured interviews – which use the same set of predetermined questions for all candidates – are the gold standard for reducing bias in recruitment and interviews. Investors who want to avoid biased questions can develop a set of questions to ask all startup founders.
While every business is unique, they can still use a checklist to balance questions that address growth, gain, and aspirations with questions that address threats, potential losses, and liabilities for all entrepreneurs.
By becoming more aware of their biases, investors should be better equipped to identify the next big female-led startup.