6 Disadvantages Confronting Female Entrepreneurs Seeking Venture Capital
Women found their voice in the #MeToo movement. So, why can't they get their startups funded?
The role of women in the workplace has assumed enormous proportions. The Economist named the economic empowerment of women as one of the most remarkable revolutions of the past 50 years. Women contribute more than $3 trillion to the economy and own over 36 percent of all businesses. Companies with women founders have performed 63 percent better than all-man teams and have also received higher valuations.
Despite these remarkable statistics, startups with women founders received only 2 percent of the entire venture capital funding last year. While no startup has it easy with funding, women seem to have it particularly hard. Here are a few reasons why.
1. Women are asked different questions.
The unconscious bias between men and women has been hard to quantify until the Harvard Business Review team decided to analyze conversations of VC decision-making conversations behind closed doors. After analyzing 125 applications and nearly 36 hours of decision-making time, the team concluded that potential male founders were questioned along the lines of the “potential of growth” and “future possibilities” of the venture they were pitching.
Conversely, questions to the female founders centered around being cautious with money and the associated risks. This distinction in use of language led to a different perception of personas, thereby leading to a much lower success rate for women founders.
2. VC networks are men's clubs.
Much of the ecosystem in the VC world is built around networks -- the number of contacts you can readily reach out to for support. Women’s networks suffer because women tend to be more conscious of work-life balance and bear a greater share of child-care responsibility. (No wonder the “Can women have it all?” debate is still hot.)
Also, male founders have another natural advantage. The VC community is predominantly male. Communities tend to look out for their own.
3. The default profile of a “successful entrepreneur” is male.
According to Candida Brush, a professor of entrepreneurship at Babson College, one of the reasons women don’t receive funding is that the generic profile of the successful entrepreneur is almost always male. When asked to picture the image of a successful male, Brush’s students require 6-10 tries to get to a successful female entrepreneur. It is always a Steve Jobs or Mark Zuckerberg before an Arianna Huffington or Sara Blakely, which may be the cause for an unconscious bias against women entrepreneurs approaching venture capitalists. Brush urges the need for this default image to be consciously changed.
Another study led by Harvard professor Alison Wood Brooks established that entrepreneurial pitches delivered by men were viewed more favorably than those by women, even when the content of the pitch was exactly the same.
4. Women tend to be more cautious, and it backfires.
Amanda Brown, former executive director of the National Women’s Business Council, states that the issues of funding for women-owned companies mirror the chicken-and-egg problem. According to Brown, women tend to bootstrap longer, and that dents their credit scores.
Since procurement of loans on a bad credit score is hard, bootstrapping begins to stifle the growth of business because infusion of funds into the company is at a much slower rate. This creates an image of the woman entrepreneur being complacent or unsuccessful, in comparison to their male counterparts.
5. Women must brave a big power imbalance.
The recent deluge of the #MeToo campaigns has helped articulate the problem that women are much more likely to face than men. Being a venture capitalist places men (already a majority in the VC circles) in a position of power that could help them get away with heaping indignities on women, without as much as a scratch to their reputations or their businesses, placing women in incredibly vulnerable positions.
6. Women lack a tribe.
There aren’t enough VC firms with women to help women founders feel naturally understood. Men funding women founders are more open to funding companies by women that provide “girly services” -- like women’s clothes or baby stuff after “checking with their wives.” No man would ever hear that. The battle gets that much harder when pitching for tech ideas.
Entrepreneur Leadership Network Contributor