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Raising the Gender Bias Question – Why do Fewer Female Tech Entrepreneurs get Funded?

September 12, 2016 | Meera Raikundalia
Gender Bias Question

When looking at performance statistics of Women-led Tech companies, it is mind-boggling to grasp why women aren’t the first in line to be funded. For example, studies show that Tech companies with a Female Founder performed 63 percent better than those companies with all-male founding teams. Furthermore, these companies are more capital-efficient and achieve, on average, a 35 percent higher ROI than firms led by men. Given their performance, how is it justified that only about 7 percent of VC money goes to Women-Led start-ups?

At first glance, it is easy to characterise this as a pipeline problem. I am not entirely convinced, as we know that about 38 percent of new businesses (in the US) are started by women. Plus, an MIT study found that women were less likely to score for funding when delivering the exact same pitch as a man. There is definitely a problem here and ‘leaning in’ is not enough to solve it. In this piece I aim to begin to dissect why it’s very difficult for women entrepreneurs to access capital and hopefully draw some practical steps to bridge this gap.

A Dearth of Female CVs

There is simply a lack of women in the driving seat at VC firms. Fewer than 6% of all decision-makers at U.S. VC firms are women which casts a light on the male-dominated culture that continues to permeate the tech and VC industries. This in turn has meant that the exact same pool of overwhelmingly male, overwhelmingly white founders are being funded year on year because of the homophily principle, otherwise known as the proverbial “birds of a feather stick together”.

Saikat Chaudhuri of Mack’s Institute of Innovation Management, says that VCs are likely to discount Women founded businesses because they second-guess their commitment. “VCs might unconsciously question whether a Female Founder would be willing to compromise on her family life for the sake of her business”. Another argument is that male VCs may subconsciously view pitches from men as being more persuasive, logical or fact based. This mentality is unlikely to change until more VC firms have a higher involvement of female partners at senior levels of management.

Female Humility Effect

A research poll found that women were 37% more likely than men to be self-funded. The question whether this is out of necessity or choice needs to be determined. By nature, women tend to have higher levels of humility, meaning we are less likely to attribute success to our talent and are also less likely to take advantage of that success. It so happens that overconfidence is the biggest psychological predictor of whether or not you’re going to become an entrepreneur. It’s astounding seeing the number of women who hold themselves back from getting in front of the big league VCs. Ultimately, if more women brave the dragon’s den, then more VCs will see examples of successful female entrepreneurs.

Scope and Historical Patterns

To simply put it; the historical minority of Female Founders means a historical minority of success stories from Female Founders. The early-stage and tech investment community is small and relatively risky. It’s fair to say that VCs prefer working with those they’ve had success with in the past which could translate into a lower number of Women Entrepreneurs receiving investment. Nick Beim of Venrock says “Most venture capitalists haven’t internalized the success of female entrepreneurs to a sufficient degree to have it influence their intuitive pattern recognition.” There seems to be a clear connection between basic human psychology and VC funding favouring men.

Overall, what is clear is that aptitude isn’t the deterrent here; it’s culture and attitude. Male-dominated environments, the lack of female role models and broader societal attitudes from and towards women in tech means fewer funded Female Entrepreneurs. What’s important is that we address the obstacles that prevent women from starting their own businesses so future generations of Women in tech are able to look up the ladder and see someone like them, saying it’s possible.

Related reading: Bias in the Recruitment Process Breeds Bias in the Workplace