The real reason female entrepreneurs get less funding Dana Kanze
This is me at five years old,
shortly before jumping
into this beautifully still pool of water.
I soon find out the hard way
that this pool is completely empty
because the ice-cold water
is near freezing
and literally takes my breath away.
Even though I already know how to swim,
I can’t get up to the water’s surface,
no matter how hard I try.
That’s the last thing I remember
trying to do before blacking out.
Turns out, the lifeguard on duty
had been chatting with two girls
when I jumped in,
and I was soon underwater,
so he couldn’t actually
see or hear me struggle.
I was eventually saved
by a girl walking near the pool
who happened to look down and see me.
The next thing I know,
I’m getting mouth-to-mouth
and being rushed to the hospital
to determine the extent of my brain loss.
If I had been flailing
at the water’s surface,
the lifeguard would have noticed
and come to save me.
I share this near-death experience
because it illustrates
how dangerous things are
when they’re just beneath the surface.
Today, I study implicit
gender bias in start-ups,
which I consider to be
far more insidious than mere overt bias
for this very same reason.
When we see or hear an investor
behaving inappropriately
towards an entrepreneur,
we’re aware of the problem
and at least have a chance
to do something about it.
But what if there are subtle differences
in the interactions
between investors and entrepreneurs
that can affect their outcomes,
differences that we’re not conscious of,
that we can’t directly see or hear?
Before studying start-ups
at Columbia Business School,
I spent five years running
and raising money for my own start-up.
I remember constantly racing around
to meet with prospective investors
while trying to manage my actual business.
At one point I joked
that I had reluctantly pitched
each and every family member,
friend, colleague, angel investor
and VC this side of the Mississippi.
Well, in the process of speaking
to all these investors,
I noticed something
interesting was happening.
I was getting asked a very different
set of questions than my male cofounder.
I got asked just about everything
that could go wrong with the venture
to induce investor losses,
while my male cofounder was asked
about our venture’s home run potential
to maximize investor gains,
essentially everything
that could go right with the venture.
He got asked how many new customers
we were going to bring on,
while I got asked how we were going
to hang on to the ones we already had.
Well, as the CEO of the company,
I found this to be rather odd.
In fact, I felt like
I was taking crazy pills.
But I eventually
rationalized it by thinking,
maybe this has to do
with how I’m presenting myself,
or it’s something
simply unique to my start-up.
Well, years later I made the difficult
decision to leave my start-up
so I could pursue a lifelong dream
of getting my PhD.
It was at Columbia that I learned
about a social psychological theory
originated by Professor Tory Higgins
called “regulatory focus,”
which differentiates between
two distinct motivational orientations
of promotion and prevention.
A promotion focus is concerned with gains
and emphasizes hopes, accomplishments
and advancement needs,
while a prevention focus
is concerned with losses
and emphasizes safety,
responsibility and security needs.
Since the best-case scenario
for a prevention focus
is to simply maintain the status quo,
this has us treading water
just to stay afloat,
while a promotion focus instead
has us swimming in the right direction.
It’s just a matter
of how far we can advance.
Well, I had my very own eureka moment
when it dawned on me
that this concept of promotion
sounded a lot like the questions
posed to my male cofounder,
while prevention resembled
those questions asked of me.
As an entrepreneurship scholar,
I started digging into the research
on start-up financing
and discovered there’s an enormous gap
between the amount of funds
that male and female founders raise.
Although women found
38 percent of US companies,
they only get two percent
of the venture funding.
I got to thinking:
what if this funding gap is not due
to any fundamental difference
in the businesses
started by men and women?
What if women get less funding than men
due to a simple difference
in the questions that they get asked?
After all, when it comes
to venture funding,
entrepreneurs need to convince investors
of their start-up’s home run potential.
It’s not enough to merely demonstrate
you’re not going to lose
your investors' money.
So it makes sense that women
would be getting less funding than men
if they’re engaging
in prevention as opposed to
promotion-oriented dialogues.
Well, I got the chance
to test this hypothesis
on companies with similar quality
and funding needs across all years
at the funding competition
known as TechCrunch Disrupt
Startup Battlefield has run
in New York City
since its inception in 2010.
TechCrunch is widely regarded as
the ideal place for start-ups to launch,
with participants including start-ups
that have since become household names,
like Dropbox, Fitbit and Mint,
presenting to some of the world’s
most prominent VCs.
Well, despite the comparability
of companies in my sample,
male-led start-ups went on
to raise five times as much funding
as the female-led ones.
This made me especially curious to see
what’s driving this gender disparity.
Well, it took a while,
but I got my hands on all the videos of
both the pitches and the Q and A sessions
from TechCrunch,
and I had them transcribed.
I first analyzed the transcripts
by loading a dictionary
of regulatory-focused terms
into the Linguistic Inquiry
and Word Count software called LIWC.
This LIWC software
generated the frequencies
of promotion and prevention words
in the transcribed text.
As a second method,
I had each of the questions
and answers manually coded
by the Tory Higgins
Research Lab at Columbia.
Regardless of the topic at hand,
an intention can be framed
in promotion or prevention.
Let’s take that topic of customers
I mentioned briefly earlier.
A promotion-coded question sounds like,
“How many new customers
do you plan to acquire this year?”
while a prevention-coded one sounds like,
“How do you plan to retain
your existing customers?”
During the same time,
I also gathered background information
on the start-ups and entrepreneurs
that can affect their funding outcomes,
like the start-up’s age,
quality and funding needs
and the entrepreneur’s past experience,
so I could use these data points
as controls in my analysis.
Well, the very first thing that I found
is that there’s no difference in the way
entrepreneurs present their companies.
In other words, both male
and female entrepreneurs
use similar degrees
of promotion and prevention language
in their actual pitches.
So having ruled out this difference
on the entrepreneur’s side,
I then moved on to the investor’s side,
analyzing the six minutes of Q&A sessions
that entrepreneurs engaged in
with the VCs after pitching.
When examining the nearly 2,000 questions
and corresponding answers
in these exchanges,
both of my methods
showed significant support
for the fact that male entrepreneurs
get asked promotion questions
and female entrepreneurs
get asked prevention questions.
In fact, a whopping 67 percent
of the questions posed
to male entrepreneurs
were promotion-focused,
while 66 percent of those posed to female
entrepreneurs were prevention-focused.
What’s especially interesting
is that I expected female VCs
to behave similarly to male VCs.
Given its prevalence in the popular media
and the venture-funding literature,
I expected the birds-of-a-feather
theory of homophily to hold here,
meaning that male VCs
would favor male entrepreneurs
with promotion questions
and female VCs would do the same
for female entrepreneurs.
But instead, all VCs displayed
the same implicit gender bias
manifested in the regulatory focus
of the questions they posed
to male versus female candidates.
So female VCs asked
male entrepreneurs promotion questions
and then turned around and asked
female entrepreneurs prevention questions
just like the male VCs did.
So given the fact
that both male and female VCs
are displaying this implicit gender bias,
what effect, if any, does this have
on start-up funding outcomes?
My research shows
it has a significant effect.
The regulatory focus of investor questions
not only predicted
how well the start-ups would perform
at the TechCrunch Disrupt competitions
but also how much funding the start-ups
went on to raise in the open market.
Those start-ups who were asked
predominantly promotion questions
went on to raise
seven times as much funding
as those asked prevention questions.
But I didn’t stop there.
I then moved on to analyze entrepreneurs'
responses to those questions,
and I found that entrepreneurs
are apt to respond in kind
to the questions they get,
meaning a promotion question
begets a promotion response
and a prevention question
begets a prevention response.
Now, this might make
intuitive sense to all of us here,
but it has some unfortunate consequences
in this context of venture funding.
So what ends up happening
is that a male entrepreneur
gets asked a promotion question,
granting him the luxury
to reinforce his association
with the favorable domain
of gains by responding in kind,
while a female entrepreneur
gets asked a prevention question
and inadvertently
aggravates her association
with the unfavorable domain
of losses by doing so.
These responses then trigger venture
capitalists' subsequent biased questions,
and the questions and answers
collectively fuel a cycle of bias
that merely perpetuates
the gender disparity.
Pretty depressing stuff, right?
Well, fortunately, there’s
a silver lining to my findings.
Those plucky entrepreneurs
who managed to switch focus
by responding to prevention questions
with promotion answers
went on to raise 14 times more funding
than those who responded
to prevention questions
with prevention answers.
So what this means
is that if you’re asked a question
about defending
your start-up’s market share,
you’d be better served
to frame your response
around the size and growth potential
of the overall pie
as opposed to how you merely plan
to protect your sliver of that pie.
So if I get asked this question,
I would say,
“We’re playing in such a large
and fast-growing market
that’s bound to attract new entrants.
We plan to take
increasing share in this market
by leveraging our start-up’s
unique assets.”
I’ve thus subtly redirected this dialogue
into the favorable domain of gains.
Now, these results are quite compelling
among start-ups that launched at TechCrunch
but field data can merely tell us
that there’s a correlational relationship
between regulatory focus and funding.
So I sought to see whether
this difference in regulatory focus
can actually cause funding outcomes
by running a controlled experiment
on both angel investors
and ordinary people.
Simulating the TechCrunch
Disrupt environment,
I had participants listen
to four six-minute audio files
of 10 question-and-answer exchanges
that were manipulated
for promotion and prevention language,
and then asked them
to allocate a sum of funding
to each venture as they saw fit.
Well, my experimental results
reinforced my findings from the field.
Those scenarios where entrepreneurs
were asked promotion questions
received twice the funding allocations
of those where entrepreneurs
were asked prevention questions.
What’s especially promising
is the fact that those scenarios
where entrepreneurs switched
as opposed to matched focus
when they received prevention questions
received significantly more funding
from both sets of participants.
So to my female entrepreneurs out there,
here are a couple
simple things you could do.
The first is to recognize
the question you’re being asked.
Are you getting a prevention question?
If this is the case, answer
the question at hand by all means,
but merely frame
your response in promotion
in an effort to garner higher amounts
of funding for your start-ups.
The unfortunate reality, though,
is that both men and women
evaluating start-ups
display the same implicit
gender bias in their questioning,
inadvertently favoring
male entrepreneurs over female ones.
So to my investors out there,
I would offer that you have
an opportunity here
to approach Q&A sessions
more even-handedly,
not just so that you
could do the right thing,
but so that you can improve
the quality of your decision making.
By flashing the same light
on every start-up’s potential
for gains and losses,
you enable all deserving
start-ups to shine
and you maximize returns in the process.
Today, I get to be that girl
walking by the pool,
sounding the alarm
that something is going on
beneath the surface.
Together, we have the power
to break this cycle
of implicit gender bias
in start-up funding.
Let’s give the most promising start-ups,
regardless of whether
they’re led by men or women,
a fighting chance to grow and thrive.
Thank you.
(Applause)