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© Michaela Pointon / Culture Trip
© Michaela Pointon / Culture Trip
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It’s 2017, and Female Entrepreneurs Still Aren’t Being Funded Equally

Picture of Claire Lancaster
Tech & Entrepreneurship Editor
Updated: 20 July 2017
Just 17 percent of global startups have a female founder, and women seeking the cash to launch and grow their businesses aren’t being funded equally because of hidden biases.

According to recent data from CrunchBase, startups with women-only founders average just $82 for every $100 of seed funding an all-male team raises. During venture rounds, female-only founder teams fare even worse, earning around $77 for every $100 an all-male team gets.

In an effort to explain the discrepancy, researchers from Columbia University and the Wharton School of Business used linguistic software and manual coding to analyze Q&A interactions between 140 venture capitalists (VCs), 40 percent of whom were female, and 189 entrepreneurs, 12 percent of whom were female.

Taking into account “capital needs, quality, and age, as well as entrepreneurs’ past experience,” they found that both male and female VCs asked different types of questions to male and female entrepreneurs – and that the relationship “completely explained” the difference between entrepreneur gender and startup funding.

More specifically, they discovered that the VCs asked male founders “promotion-oriented” questions about the potential for gains, and female founders “prevention-oriented” questions about the potential for losses.

When asking an entrepreneur about future income, for example, a “promotion-oriented” question might be ‘How do you plan to monetize this?’, while a “prevention-focused” question would be ‘How long will it take you to break even?’.

Notably, the vast majority (85 percent) of male and female entrepreneurs replied to questions in a manner that matched the question’s orientation, meaning a promotion-style question was responded to with a promotion-style answer, and vice versa – an important distinction if you’re trying to convince a VC that your startup is going to knock it out of the park, not play it safe.

For comparable companies, the researchers found entrepreneurs who were asked mostly prevention questions raised roughly seven times less than the entrepreneurs who were asked mostly promotion questions. In fact, the effect of promotion vs prevention questioning was so dramatic, that for every additional prevention-oriented question asked of an entrepreneur, the startup lost roughly $3.8 million in potential funding.

It’s shocking then, that roughly two-thirds of the questions posed to female entrepreneurs were prevention-oriented, while more than two-thirds of the questions posed to male entrepreneurs were promotion-oriented.

Female entrepreneurs were asked questions about safety, responsibility, security and vigilance. Men were asked about their hopes, achievement, advancement and ideals.

To verify the causality of their findings, the researchers ran an experimental Q&A, with 194 VCs (30 percent of whom were women) and 106 “ordinary” users (47 percent women). Once again, the results showed an investor bias towards asking female founders prevention-oriented questions.

The experiment also confirmed the benefit of switching the orientation, with the VCs allocating an average of 1.6 times more funding to the promotion question, promotion answer fielded startups than the prevention question, prevention answers.

The fact that both male and female VCs had a bias toward asking female entrepreneurs promotion questions suggests the issue is deeper than male VCs discriminating against the opposite sex. Indeed, the findings highlight the deeply-held and irreconcilable expectations we have for men and women in the workplace. If not now, when will we come around to the idea that men and women should be treated equally?