🚀 Investing in Difference: How VC Funding Can Benefit from Rethinking Female 🚺 Social Norms 🚀

Did you know that gender-based societal norms can significantly impact an entrepreneur’s ability to secure venture capital (VC) funding?

🤔 Research has shown that biases against feminine-stereotyped behaviours affect both male and female founders, leading to unequal funding opportunities. But here’s the twist – it’s not about gender itself, as our vast network of over 225 VC Partners has demonstrated.

🔍 Dive deeper into the surprising insights and eye-opening statistics on gender bias in VC funding in our latest article! 👇

⛵ Discover how societal norms influence women’s behavior in the startup world, and how this can pose unique challenges for female founders when securing investments.

🚀 Learn about gender role theory and its impact on entrepreneurship, shedding light on the biases that entrepreneurs face in male-dominated fields.

🌟 But it’s not all gloom and doom! The article uncovers empowering strategies for VCs to challenge and mitigate gender bias in their decision-making processes. From embracing ‘win-win’ negotiation styles to recognizing diverse decision-making approaches, there are actionable steps to level the playing field for all founders.

⏳ Time is of the essence! Let’s work together to create a more equitable and inclusive startup ecosystem. 💪 Read the full article 👇now, like and share!

Overview

Gender-based societal norms often influence women’s behaviour, affecting their ability to secure venture capital (VC) funding. Biases against feminine-stereotyped behaviours also exist, impacting the funding received by both male and female entrepreneurs. However, it’s not gender itself that deters investor interest, as shown by our VC Partners network of over 225 members.

Research highlights the incongruity of VC funding decisions, revealing gender biases rather than meritocracy. This includes a New Zealand study which found that male-only founder teams, despite having the lowest returns, received the most funding. Women and men delivering the same pitches resulted in men being 60% more successful at securing investment.

At The200BnClub’s Accelerator Programme – beyond what a traditional Accelerator provides – we work to tackle these biases and equip female founders to effectively persuade VCs. To minimise gender bias, we also propose strategies that VCs can implement such as acknowledging the flaws in human decision-making, embracing ‘win-win’ negotiation, redefining risk perception, increasing visibility, recognising different decision-making styles, redesigning systems to mitigate biases, recording and evaluating pitches, reflecting on powerful women, exposing to counter-stereotypical examples, being transparent, and maintaining a feedback loop.

The shift in narrative is steady, with biases becoming more acknowledged, behaviours changing, and the benefits of diverse leadership gaining recognition. But with only 2.1% of US VC funding going to female founders in 2022, It’s imperative we intensify efforts to eradicate biases from decision-making processes for a brighter future for female founders and the start up ecosystem as a whole.

Investing in Diversity: How VC Funding Can Thrive by Embracing the Strength of Female Founders

Gender-based societal norms often shape women to express qualities such as humility, empathy, kindness and the inclination to foster relationships. While these qualities have numerous strengths, they can paradoxically present challenges in situations where expected negotiation and assertiveness styles are required, particularly in securing venture capital (VC) funding.

Family roles across societies often depict women as caregivers. In the UK, women are seven times more likely than men to leave their job to tend to caregiving commitments, emphasising the role of empathy, patience, and kindness. These norms are further reinforced in popular culture and education, with narratives like the ‘damsel in distress’ and the ‘angel in the house’ often depicting women as passive, modest, and selfless. Educational institutions frequently encourage girls to be agreeable and to conform to societal expectations (The Confidence Code: Kay K. & Shipman, 2018).

Societal norms and biases infiltrate professional environments, resulting in a twofold impact. On one hand, these biases can cause women to undervalue their accomplishments and hesitate in expressing their opinions compared to their male counterparts. On the other hand, even when women step forward, they are often still undervalued. As Linda Babcock illuminates in her groundbreaking book “Women Don’t Ask,” women and men are equally likely to ask for a raise, yet women typically receive 20% less. This striking disparity indicates the deep-seated gender bias that persists in professional contexts and we observe spilling over into the VC world.

Further research supports that due to stereotypical characteristics attributed to each gender, jobs and occupations that are dominated by men or women can become stereotyped as masculine or feminine (Eagly & Karau, 1991; Heilman, 1983; Muehlenhard & Peterson, 2011; Wood, 1999). As a result, research applying gender role theory argues that success in male- and female-dominated occupations requires correspondingly gender stereotypical characteristics (Eagly, 1987; Eagly & Karau, 1991; Heilman, 1997). Extending this theory to entrepreneurship suggests that, because entrepreneurship is a “man’s world,” both men and women should display stereotypical masculine characteristics to garner more interest and support from resource providers like venture capitalists (Gupta, Turban, Wasti, & Sikdar, 2009.

Contrary to common belief, the study ‘Don’t Pitch Like a Girl’ shows that being a female entrepreneur doesn’t inherently reduce investor interest, as evidenced by our vast network of over 225 VC Partners. The study indicates that the bias isn’t against gender per se, but against feminine-stereotyped behaviours exhibited by entrepreneurs, regardless of their sex.

This bias is born out in many pieces of research, including the most recent research from

The Gender Investment Gap in New Zealand, which has startling statistics:

🔔 The group with the LOWEST returns receive the MOST funding – startups with male-only founder teams.

📣 With the SAME content, women and men pitched to a group of investors. Men were 60% more successful at receiving investment. With the SAME pitch.

🔉 Which demonstrates that venture capitalist don’t invest only on merit and that gender biases do come into account, and every pitch is not considered equally.

At The200BnClub’s Accelerator Programme, we have firsthand experience with how these societal norms pose challenges for our female founders. However, it’s crucial to not just focus on the hurdles but celebrate the unique strengths and successes of female entrepreneurs.

By doing so, VCs can make sure they’re not missing out on great investment opportunities. In New Zealand alone, this bias is estimated to cost VCs $32 Billion, while the UK is missing on over £200 Billion that can be generated by female led businesses if the UK invested in women at par with best in class countries. (Hence the name of our accelerator 😉).

This bias persists in spite of a study by Caliper in 2005 which revealed that contrary to ingrained norms and stereotypical characteristics attributed to each gender that:

“Women leaders tend to be more assertive, persuasive, willing to take risks and have a stronger need to get things done than their male counterparts” 

Their research discovered:

• Women leaders are more persuasive than their male counterparts.
• Feeling the sting of rejection, women leaders learn from adversity and carry on with an “I’ll show you” attitude.
• Women leaders have an inclusive, team-building leadership style of problem solving and decision making.
• Women leaders are more likely to ignore rules and take risks.

All qualities admired by VCs.

In the research titled: Don’t Pitch like a Girl, it found when entrepreneurs display stereotypically “feminine” behaviours during venture capital “elevator pitch competitions” they are less likely to be selected as finalists regardless of actual gender. 

Humility or agreeableness should not be misinterpreted as a lack of competence. VCs need to focus on the founders’ track record and potential. Throughout the cohorts we ran, we noticed that most women are muted about their previous achievements out of fear of sounding arrogant. Women founders must be vocal about their competence and achievements VCs cannot accurately assess them without clear and assertive communication.

In our accelerator program, we specifically address the unique challenges faced by female and other underrepresented founders. Beyond what a traditional accelerator offers in terms of fine tuning business models and access to funding, we equip them with strategies to effectively persuade VCs and navigate the pitching process. Limiting gender bias, particularly in high-stakes scenarios like venture capital pitches, involves a combination of awareness, proactive steps, and structural changes. Here are some strategies that VCs and founders can use to limit gender bias:

10 Ways to hack our brains so we can change and challenge perceived competence stereotypes

1. Recognise as humans our decision making is flawed

Contrary to traditional economic theory, which assumes individuals make choices independently, behavioural economists argue that decisions are largely influenced by one’s social context and networks. In fact, imitation of others’ behaviour is often an automatic response.

The World Bank Development Report (2015) attests to this, stating, “Individuals are not calculating automatons. Instead, they are malleable and emotional actors, influenced by contextual cues, social norms, shared mental models, and local social networks.”

This behavioural insight is crucial in understanding disparities in various sectors, including entrepreneurship. As we’ve already discussed the report “Don’t Pitch like a Girl” uncovers a bias against behaviours typically perceived as feminine, regardless of the gender of the individual displaying them. Meanwhile, the study in New Zealand reveals an ironic contradiction: the group with the lowest returns—startups with male-only founder teams—receive the most funding.

Further evidence comes from a 2017 study by Kanze, Huang, Conley, and Higgins. Their research brings to light a striking disparity in the questioning style of investors: 67% of questions posed to male entrepreneurs were promotion-oriented, while 66% of those asked of female entrepreneurs were prevention-oriented.

The implications of this bias are significant. The study found that founders subjected to prevention-oriented questions raised 7 times less funding. This underscores the profound effect of social context and biases on decision-making and outcomes, reinforcing the need to challenge and change these dynamics.

“For every additional prevention question asked of an entrepreneur, the startup raised a staggering $3.8 million less, on average.”

Together, these studies underscore the reality that VC investment decisions are not solely based on merit. Gender biases persistently factor into the evaluation process, meaning pitches aren’t always considered on an equal footing.

2. Embrace ‘Win-Win’ Negotiation: 

Women may not assert themselves the same way as men do due to societal conditioning (Babcock & Laschever, 2003). Instead women often employ a cooperative, ‘win-win’ negotiation strategy, seeking mutually beneficial outcomes that foster long-term relationships. Contrarily, men tend to use a competitive, ‘win-lose’ approach. The cooperative style often used by women lead to sustainable business partnerships, a valuable asset in the venture capital landscape.

2. Redefine Risk Perception: 

Women’s perceived humility or tendency to downplay their achievements compared to their male peers is often mistaken for a lack of ambition and therefore seen as a more risky investment. However, this humility can encourage realistic assessments of risks and opportunities, contributing to sustainable business growth. Bearing in mind venture capitalists typically approach financial projections in pitch decks with a healthy degree of scepticism, given that male entrepreneurs are naturally optimistic about their ventures and tend to provide high forecasts, female founders represent a more realistic approach. Remember that when it comes to forging a path less travelled, women leaders are more likely to ignore rules and take risks.

3. Increase Visibility: 

While societal norms might cause women to self-promote less aggressively, their emphasis on relationship-building often helps them establish strong networks of support. In a venture capital context, this can lead to enduring partnerships and collaborations. This can mean that female founders might not put themselves forward as readily as men, but VCs can counteract this by proactively reaching out to diverse networks and partnering with programs like The200BnClub to ensure they have a quality pipeline of female founders and mixed gendered teams.

4. Recognise Different Decision-Making Styles: 

A lot of the unconscious bias stems from stereotypical ideas of what male leadership traits look like and that they’re preferred and represent success over female leadership traits. The traits often associated with women, such as empathy and collaboration, can be tremendous assets. A 2022 McKinsey Global Institute report showed that companies with gender-diverse executive teams were 25% more likely to outperform in terms of profitability. 

Recognising that a variety of styles provide a variety of benefits when considering pitches is key. For example, if a founder has a consensus-driven approach, it can lead to slower decision-making, but it can also result in well-considered, team-backed decisions. Considering 18% of startups fail due to team problems and other human-resource-related issues, this is a valuable benefit.

VCs should appreciate diverse decision-making styles. 

Founders can dispel misconceptions by communicating the rationale behind their decision-making processes.

5. Powerful Women Reflection:

Before entering a pitch or making a decision, take a moment to reflect on powerful and successful women in the industry. This could help counteract any underlying biases by priming your mind with positive associations related to women and leadership. Remember that successful founders don’t all look the same, and often aren’t your stereotypical tech bro mould

6. Redesign systems, processes and structures to mitigate biases:

Accepting the insights of behavioural economists—that our decision-making processes are often flawed—we must work towards designing systems that help us navigate and avoid unconscious bias. As Iris Bohnet elaborates in her book ‘What Works: Gender Equality by Design,’ the route to achieving gender equality is not about ‘fixing’ women but about transforming the systems and environments where decisions are made.

Current statistics make it clear that traditional methods, which typically involve urging women to alter their behaviour or providing them with additional resources, are not sufficient to effect enduring change. This is starkly illustrated in funding disparities: companies with all female-founding teams raised only 2.1%—around $800 million—of the estimated $37 billion invested in U.S. startups in Q1 2023, as reported by PitchBook. 

Instead, we advocate for redesigning systems, processes, and structures to mitigate the impact of unconscious biases and promote more equitable outcomes for everyone.

Venture capitalists often employ scorecards as structured evaluation tools to assess startup pitches and potential investments. These scorecards detail specific criteria and weightage, allowing VCs to rate pitches on facets like market opportunity, team expertise, revenue potential, scalability, traction, and more, thereby integrating both quantitative and qualitative data. Such a method is effective in mitigating bias to an extent. 

However, when VCs aggregate scores to compare startups, determine portfolio fit, and make informed investment decisions, their gut instincts and past experience inevitably influence their final choices. This is where we propose an upgrade: scorecards should be refined to ensure an equal number of preventive and promotive questions are asked of all founders, irrespective of their gender.”

7. Counter Stereotype Exposure: 

Regularly expose yourself to counter-stereotypical examples in your industry, which can help challenge and change biased mental models over time.

8. Transparency: 

Be open about the decision-making process and criteria. Transparency can help keep everyone accountable and makes it easier to identify and address any biases that might be influencing decisions.

9. Record, transcribe and evaluate pitches:

Implement a system to record, transcribe, and evaluate each pitch. This process facilitates a direct comparison of the types of questions posed, the data presented, and the responses given by founders. By having a comprehensive written record of each pitch, decision-makers can examine them in detail, looking for patterns in questioning that may suggest bias. Furthermore, this also allows for an unbiased analysis of how founders respond to different types of questions and the quality of data provided in their pitches. Over time, this wealth of information can help pinpoint and rectify unconscious bias, ensuring a more equitable evaluation process.

10. Feedback Loop: 

Regularly review and refine the decision-making process. Look for patterns that might suggest gender bias, and seek feedback from others to ensure continuous improvement. 

Remember, bias is often unconscious and unintentional, but it can still have significant effects. Implementing strategies like these can help to reduce gender bias and make the decision-making process fairer and more equitable.

The narrative is steadily shifting as biases become more widely acknowledged, younger generations alter their behaviours, and the advantages of diverse leadership gain recognition. While numerous investors and organisations are actively working to support and fund female founders, appreciating their distinctive insights and contributions, we need to intensify our efforts to eradicate biases from our decision-making processes. This holds true across all genders. Only through such concerted efforts can we illuminate a bright future for female founders who dare to assert their presence and unapologetically celebrate their achievements.

If you’re a VC interested in discussing your current diversity strategies, exploring fairer assessments or taking part in our corporate interactive course, reach out to Bridget at bridget@the200bn.club and let’s pave the way for success together.