Start-Up Funding: Jack Gets the Bread, Jill the Crumbs

If it’s not implicit bias, then why do female entrepreneurs struggle to access venture capital?

woman presentation

By Alan Morantz

When American dotcom entrepreneur Aimee Kandrac pitched her business idea, she heard plenty of jaw-dropping responses. One stood out: “What will investors think when they walk into your office and see there are more women than men working there?” she was asked. “Can’t your husband just give you a loan?”

Women entrepreneurs reading this will nod in recognition. Their access to start-up and growth capital continues to be a sore spot. Statistics seem to suggest that there’s either discrimination or deep-seated bias in funding bodies that are predominately guided by men.

Consider this: Women-owned companies typically receive bank loans for lower amounts and with higher collateral requirements.

All-male venture teams are four times more likely to receive funding from venture capital investors than ventures with just one woman on their team.

And under three percent of the companies that receive venture capital funding have a woman CEO.

Part of this may have to do with who is doing the funding. Only 14 percent of venture capital-funded businesses in the U.S. have women in management positions. But it’s not only that male investors are in charge. One study showed that female angel investors have a tendency to refuse financing to female entrepreneurs. Another study of equity crowdfunding found that women investors are just as biased as men in their assessment of the competence of female entrepreneurs.

What The Pitches Say

If you care about inclusive business, it looks bleak. But a couple of recently published studies suggest that picture is not quite accurate. As Meryl Streep would say, it’s complicated.

In the first study, a team from Cornell University examined gender differences in angel financing. They closely analyzed some 500 pitches that were aired on the U.S. entrepreneur-based television show Shark Tank.

They found that women were no less likely to receive funding but that the amount of funding differed significantly from male entrepreneurial teams. Female teams received less capital and provided more equity relative to their male counterparts, even allowing for industry and track record.

For some reason, female entrepreneurs initially offered higher equity stakes and asked for less capital

Why? Largely because the female entrepreneurs initially offered higher equity stakes and asked for less capital. On average, the all-female teams were willing to exchange two percent more equity stake in their company for half the dollar amount compared to the all-male teams. The all-female teams seemed to be their own worst enemies.

Why give up more and ask for less? They may have thought they were being strategic, expecting biased pushback from the sharks and adjusting their valuations accordingly. Or they may actually undervalue their companies relative to firms led by men.

Whatever the reason, the researchers concluded that limitations to angel financing of female entrepreneurial ventures may be partly self-imposed.

You could see this as a good news story. If female-led entrepreneurs can be more aggressive in their valuations and their funding requests, they would get better results with prospective investors. In fact, based on their Shark Tank study, the researchers concluded that, in this setting at least, women were not at risk of losing an offer if their valuations had been higher. Apparently, they were leaving money on the table.

Bias Against “Feminine” Behaviours

The second study was also based on a pitch event. This one looked at 185 presentations made to venture capital investors at a university investment competition, similar to the business plan competitions organized by the Centre for Business Venturing at Smith School of Business. The researchers, from Babson College, University of Alberta, and Northeastern University, wanted to know not only how women entrepreneurs did relative to men but if gender-stereotyped behaviours had anything to do with the investors’ decisions.

Like the other study, they found that women entrepreneurs were just as likely as men to receive investor interest in their ventures. But here’s the kicker: investors were biased against the display of feminine-stereotyped behaviours by the entrepreneurs, men and women alike.

The investors made implicit assumptions based on these stereotypes. When investors observed masculine-associated behaviours such as forcefulness, dominance, aggressiveness, and assertiveness — in men or women — they perceived business competence, preparedness, and leadership. When they observed feminine-associated behaviours such as warmth, sensitivity, and expressiveness, they perceived a lack of business competence and seriousness.

Is Entrepreneurship a Man’s World?

So what’s the answer? If entrepreneurship is a ‘‘man’s world,’’ should men and women display stereotypical masculine characteristics to garner more support from investors?  I’m not so sure. Studies have shown that female leaders in the workplace who are aggressive and assertive are dinged with negative performance evaluations and passed over for promotions.

Then again, in this study at least, female entrepreneurs who behaved like stereotypical men did just fine. Maybe the entrepreneurial ecosystem operates a bit differently than the corporate ecosystem.

The irony in all this is that investors should be climbing all over each other for a chance to fund female entrepreneurs. Judging from U.S. figures, revenue and employment growth among women-owned firms outperform that of all other firms, aside from large publicly-traded corporations. Once they’re capitalised, ventures led by women grow faster and perform better than those owned by men.

Just wondering . . . when will the bias for a great return on investment kick in?


Alan Morantz is editor of Smith Business Insight.