The words VCs use for male vs. female founders — and how to fight bias in startup funding
How exactly does gender bias make it harder for female founders to get companies off the ground? A new study from researchers in Sweden found that venture capitalists — who act as entrepreneurship's gatekeepers by funding new businesses — described male and female entrepreneurs with drastically different words during closed-door meetings, which in turn seemed to affect funding decisions.
Just how much? On average, women were awarded only about 25% of the money they asked for to fund their companies. The men, by contrast, were awarded about 52%, according to a write-up in the Harvard Business Review.
In several cases — the researchers found, after analyzing transcribed recordings of more than 100 such meetings — the same quality was described as a positive on a man, but a negative for a woman.
"They were talking about a man entrepreneur who owned a really expensive car, and they said, 'Yeah he owns this really expensive car and that tells us he's a financially solid person and he knows how to do business because he has the money to spend on toys,'" Malin Malmstrom, one of the paper's authors, said in a phone interview. "But when a woman had an expensive car, they instead said, 'This woman is careless with money, she's high maintenance and we're not sure what she's going to do with the money if we give it to her.'"
Some other examples of this double standard? Careful men were "cautious, sensible and level-headed" while careful women were "too cautious and did not dare." Young male entrepreneurs were "promising" while young female entrepreneurs were "inexperienced."
It's a particularly noteworthy study, because it captures a crucial part of the entrepreneurial experience that happens behind closed doors. Getting a company off the ground usually requires expensive resources: You need money to hire employees, buy materials, conduct research and development. VCs are one of the main ways to get that money, but even prestigious VC firms have a reputation for being insular, guarded and, yes ... sexist.
Researchers behind the new paper were able to gain access to closed-door discussions thanks to a commission from the Swedish government, who allowed them to observe government VCs in their discussions as they doled out €190 million between 2009 and 2010 (about $247 million in 2010 U.S. dollars). They were commissioned to look for ways to improve the overall venture funding process, not look for sexism. Indeed, though they observed all these meetings, the researchers said that while they were in the moment, they never heard anything that seemed sexist.
"It wasn't until we went to transcribe the recordings that we saw that something was wrong," Jeaneth Johansson, another of the paper's authors, said in a phone interview. "Every situation is unique when decisions are taken and this makes it difficult to see gender structures in situations."
The findings were also surprising because Sweden is known for its efforts to establish gender equality. Sweden has a cabinet position devoted to gender equality, robust child leave laws and routinely tops rankings for gender equality in the workplace. In 2015, every 16-year old in the country received a copy of Chimamanda Ngozi Adichie's We Should All Be Feminists.
"Sweden is one of the highest ranked countries in terms of equality," said Malmstrom. "It is kind of disturbing to see these findings in a country that's supposed to be at the forefront of these issues."
Can female entrepreneurs fight back?
Malmstrom said she and her colleagues have a theory about how women can overcome double standards. It's not as simple as trying to appear confident by overcompensating, she said, because a woman trying too hard to appear daring could instead seem reckless. Instead, bringing a sense of passion can help: "Our hypothesis, for women, is that instead of showing these kinds of qualities, they should show entrepreneurial passion," Malmstrom said. "Passion is more emotionally founded, and that is something that links to qualities seen as positive for a woman to express. But we haven't really been able to show results yet."
Other research in this area have led to similar findings. One paper added an interesting control: Most businesses are fairly run-of-the-mill. A pizza place is a pizza place — you might tinker with the sauce, or the decorations, but it's still the same business. When pitching these kinds of ventures, women almost always fare worse. But when pitching exceptionally innovative idea, women entrepreneurs were actually higher rated than their male counterparts. In other words, it may help to dream big.
"Women pitching to investors can be overly analytical, focusing more on reality than their vision," Women Who Code CEO Alaina Percival said to Money in 2015. "The truth is you have to embrace a kind of 'fake it till you make it mentality.'"
Another issue to consider is how you're going to make an investor understand the problem that you're solving. Many female founders report that the men they pitch often struggle to understand the value of products they're never going to use. That's a reason to come armed with statistics about your market — but also bring in personal stories, humor and even visual aides or demonstrations to help bring your idea to life.
Depressingly, another kind of "prop" can help: a male staffer on your team. "We learned six months in, it didn't matter what man we brought in, but if we had a guy in the room we always got a second meeting," said Kate Ertmann, a serial entrepreneur who most recently was COO of QCut, startup that used algorithms to offer 400 different sizes of jeans. "Whatever guy was in the office who was reasonably well-dressed."
That's not a concession anyone should have to make, Ertmann said, but it helps with the toughest step — getting that second meeting, which is when more serious due diligence begins to happen.
"That first meeting is so much about the verbal things and... the people," Ertmann said. "If you have unconscious bias going on where they're making assumptions and conclusions based on gender stereotypes, you can usually get through that by the [end of the] first meeting."
Many women who have succeeded in breaking through tech's barriers have also touted the importance of mentors. If you don't have people in your own network you can reach out to for this kind of help. Consider joining one of the many trade associations advancing women entrepreneurs that have sprouted up in recent years. Organizations like Women Who Code and Ellevate can offer access to networking and professional development.
Finally, as women have rightfully pointed out, the onus can't just be on female entrepreneurs to fight sexism in their careers. While female founders certainly might focus their pitching efforts on more inclusive firms like Backstage Capital and Pipeline Angels — which are committed to funding underrepresented groups like women and minorities, there are moves everyone in the startup world can make to help fight sexism in the industry.
VC firms might hire more women, as it helps to have more diversity on the funding side in the room when ideas are pitched. Putting more women front and center at tech conferences and in panels would help normalize the presence of female entrepreneurs.
And continuing to support research about gender bias in the startup world is important — because transparency holds institutions accountable: In HBR, the Swedish researchers wrote that in the end, their study helped lead to "a new strategy for the distribution of government VC funds" in Sweden.