Does gender bias have an impact on venture funding?

It is an uncomfortable truth that although 40 percent of privately held companies are founded by women, they only receive two percent of venture capital funding. Zooming in a bit deeper, research by business information platform, Crunchbase, has shown that the percentage of female-founded venture-backed startups has remained static at 17 percent since 2012.

What these disproportionate statistics show, is that although there are various initiatives to promote women in technology and female entrepreneurship, the scarcity of capital hinders women from turning their startups into great, well-known companies, as opposed to smaller ‘family’ and ‘lifestyle’ type businesses. The number of women starting companies is not the core issue, the far bigger problem is their lack of access to capital.

This is a loud and clear call for breaking down gender stereotypes.

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The danger of gender bias — in fact all biases — is that they are insidious because they cloud our judgement almost inadvertently. They lead to discrimination and exclusion of others and generally limit opportunities. We tend to treat a person or a group as less important, insignificant, or peripheral when we accept incomplete or inaccurate information as the truth without properly interrogating the facts.

There are four basic gender stereotypes:

Personality traits — women are often expected to be accommodating and emotional, while men are usually expected to be self-confident and aggressive.

Domestic behaviour — traditionally women were expected to take care of the children, cook, and clean the home, while men look after finances, work on the car, and do home repairs.

Careers — there’s a general assumption that teaching and nursing are careers more suited to women, while men are better at being pilots, doctors, and engineers.

Physical appearance — women are expected to be thin and graceful, while men are expected to be tall and muscular. They are also expected to dress and groom in stereotypical ways, with men wearing pants and short hairstyles, while women wear dresses and make-up.

The above stereotypes are usually based on a very simplistic view of people. While socially well-adjusted individuals reject such limited views, others simply mask their prejudices, with most people stuck somewhere on the continuum between those two paradigms.

However, there are rules of conduct that apply in certain areas such as business and politics, where the open display of animosities are no longer accepted. But this does not prevent our unconscious biases from influencing our decision-making processes as we pursue our goals. As long as we do not know what our subliminal prejudices are we remain at the mercy of our decisions, sometimes to our own detriment.

Tory Higgins, professor of psychology and researcher at Columbia University, developed the regulatory focus theory which distinguishes two types of self-regulation orientations:

Promotion focus — emphasizes gains, fulfillment, hopes, accomplishments, and advancements

Prevention focus — emphasizes potential loss, safety, responsibility, and security needs

According to Higgins’s theory there is an inherent performance advantage when you are in a situation that corresponds to your preferred focus aka ‘regulatory fit’.

Dana Kanze, a doctoral fellow at Columbia Business School, inspired by Higgins’s theory and motivated by her own experience as a female startup founder, conducted a field study on the Q&A interactions of 189 startups that presented at TechCrunch Disrupt, New York City, from 2010 to 2016. Her findings revealed that the two self-regulatory orientations — promotion vs prevention — had a gender bias to them. Investors tended to ask male entrepreneurs promotion-focused questions, while they peppered female entrepreneurs prevention-focused questions.

Kanza’s research showed that those entrepreneurs who received predominantly promotion-focused questions raised significantly more funds than those who received prevention-focused questions. This was mainly due to the fact that entrepreneurs typically respond with an answer that matched the regulatory focus of the questions asked. As a result female founders unintentionally positioned their startups at a disadvantage when answering investor questions.

This has led to a huge gap in funding for male and female startups. But there is a solution to investment screening bias: don’t get dragged into a prevention dialogue! Instead, respond to prevention questions with a promotion answer. For example, if a female entrepreneur is asked a question about defending market share in a competitive market, she can respond by referencing the startup’s competitive advantages to grow rapidly in that same market.

Although we are constantly discovering more facets to our deeply rooted social frameworks, there are no silver bullets to solve the problem of inequality. Most of us are so deeply hardwired that not even the most intelligent and well-adjusted individuals can recognize their own subtle prejudices. And that includes women — no one is free from bias.

Window-dressing efforts like appointing more women in senior positions or paring female founders with female investors can often be like putting lipstick on a pig — it might look good (for while), but it remains a pig. If we all move the needle just a tiny bit by recognizing the problem and creating awareness of the underlying psychology, change may be on the horizon. The moment we limit ourselves to homogeneity because it feels safe, we perpetuate the problem.

While it is understandable that similarities, such as the same sex, background, or social circles, can provide confidence and security, such socio-economic biases can be poisonous to a culture of innovation and result in stagnation. Diversity, on the other hand, tends to foster creativity and problem-solving competencies. By extending an open invitation to everyone and allowing them to be their best selves, we create an innovation-friendly environment that promotes new business opportunities and for some established businesses, even sustainability.

Birgit Thümecke is co-founder and chief growth officer at global events platform, Eventerprise.com. Find out how Eventerprise has put the nurturing of diverse talent at the heart of its global growth philosophy: EventerCamp — digital and entrepreneurial skills for the 21st century