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The Reason Why Female Founders Get Less Funding That No-one Talks About



Imagine this: you´re at the local public pool on a sweltering summer´s day and suddenly look up to the sound of a child in the water, splashing with the frantic fervor that only comes when life and death are on the table. Arms and legs windmilling, your limbs lock into autopilot and propel you to straight over the edge and into the pool. In a fraction of a second, the child (and about 1/8th of the pool´s chlorine-reeking water) has been hauled to safety.


Yes, the sight of the struggling child more than likely instilled a deep fear in you: viscous black ink dripping into the pit of your stomach. As much as this fear pierced your consciousness and may haunt you for days, it was the critical factor in the circumvention of impending tragedy. If the child had been a meter and a half below the surface, bubbling away far from sight, we could have had a case of another chilling pool death on our hands.


When something is wrong but also noticed, something can be done to make the situation right. If problems go unnoticed, they can fester and develop into something much darker.


This very point is made by Dr. Dana Kanze in her whistleblowing fifteen-minute Ted Talk, calling out systemic gender inequality in the folds of the twenty-first-century investment process. Dr. Dana Kanze is based at London Business School, where she applies behavioral insights to make sense of the inequality-studded labor market, as an assistant professor of organizational behavior.


For decades, even in the space dominated by scholars of entrepreneurship research, gender inequality in VC funding bubbled away unnoticed, sinking further and further from sight. In her talk, she delves into research that aims to answer the question: if women own 39% of US-based companies, why do only 2% of VC funds end up in the pockets of female founders?


She explores the avenue of research that points towards the culprit being not competence disparities, nor cracks in confidence on behalf of the investee, but rather: the types of questions start-up founders get asked when they're invited to pitch.


Bet you didn´t see that coming.


Dr. Kanze was first drawn to this subject when in conversation with potential investors to raise capital for her own fledgling start-up, which she initiated alongside her male co-founder. She was taken aback by the difference in questions that she was being asked versus those that were being fired in the direction of her business partner, seated right next to her. She urges women to learn how to spot the kinds of questions that are being posed -- and how to respond more effectively, whether starting a new business or simply in conversation.


Although the types of questions may seem trivial, robust psychological research conducted by Dr. Terry Higgins, suggests otherwise. Higgins proposes that the questions that flow and ebb in investment settings can be categorized into two subsets: promotion and prevention questions. Dr. Kanze noticed that while she was under the fire of curt prevention questions, her male partner was able to bask in the limelight of the more amiable responses, triggered by promotion questions. In other words, while she was asked about everything that could possibly go wrong with the business, he had the privilege of painting a pretty picture of dizzying potential.


Curiosity curdling, her deep dive into existing research made it quickly clear that her experience was no exception to the rule, and she was not seeing things that weren´t there. The data shows that there is, in fact, a pattern of female founders receiving the naked brunt of prevention questions, while male founders are given opportunity after opportunity to lay bare the sky-high ambitions of the business through the rose-tinted lens of promotion questions. That´s because promotion questions trigger promotion answers and prevention questions tend to prompt a prevention answer.


Tell me one way how to respond to the question, ¨How exactly will you manage to retain your existing customers? ¨ in a more awe-inspiring way than to the questions, ¨How large is the potential for your customer base?¨


And when it comes to finding investment, inspiration is key.


Prevention questions concern customer retention, market share on income statements: margins, on balance sheets: liabilities, when it comes to projections: stability.


Promotion questions instigate discourse on customer acquisition, market size, on income statements: sales, on balance sheets: assets, regarding projections: growth. Dr. Kanze´s own research demonstrated that the implicit gender bias was not limited to the context of male investors in discourse with a female potential investee.


Female investors were just as likely to latch onto prevention questions in conversations with female founders, so inadvertently favoring male founders with more palatable promotion questions.


So, what – if any - is the effect on funding outcomes for women?


The start-ups in her study that were predominantly asked promotion questions went on to raise seven times as much funding as those that were trapped in the cycle of prevention questions and their equally uninspiring prevention answers.


Here´s the silver lining.


Prevention questions are not immune to a flipping of the script. Though counter-intuitive, we are not bound to respond to questions with a certain regulatory focus with congruent answers – in other words, the cycle can be broken. Promotion answers can be given to prevention questions.


And – drumroll please - in this case, the start-up is fourteen times more likely to receive funding.


Picture this: your business idea has just been probed with the hostile question of how you will protect your market share. You´d be better off framing your response in a way that puts emphasis on the overall size of the market than you would be by launching into the gritty details of how you will cling onto your slither of the pie.


The key here is the switch. Those that succeeded in pulling a plug in an onslaught of prevention-focused questions, and reframing their answers to promotion responses were significantly more likely to receive funding than those that simply had the luck of being asked promotion questions and responding accordingly.


So, the curse of the prevention question can be leveraged. Female founders have the unique opportunity to turn a prevention question inside out, by gutting the status quo and responding to questions about liabilities with assets, questions about margins with sales and questions about market share with market size. Dr. Kanze´s advice to women in the boardroom?


FOR FEMALE ENTREPRENEURS


  1. Stop for a second and register the question you are being asked. Is it a prevention question?

  2. Flip the script and give your response in the shape of an energized promotion answer. Steer the conversation back to the rosy realm of potential – if male founders are given the opportunity to proudly proclaim how much money they will make their investors, female founders shouldn´t be stuck in the cramped space of promising not to lose the investment.


FOR FEMALE & MALE INVESTORS


  1. Notice the ruts in which you fall when approaching conversations with female founders and their male counterparts differently.

  2. Make a conscious effort to standardize the questions asked, even if this entails simply tweaking the terminology used.

  3. Remember: not only will your efforts enable every budding start-up to shine without inhibition through the gender of its founder, but they will also improve the quality of your own decision-making. Your bank account could thank you – as your ears may perk to investment goldmines that would have otherwise passed under your radar, like a child thrashing about in the depths of a pool.


At the Global Collective, we are fueled by the mission to smooth out the terrain for female entrepreneurs in the investment process.


We aim to achieve this through the pillars of technology and education: technology to systematically cultivate unlikely encounters between male venture capitalists and female founders; education to pick up on existing patterns in the investment conversation that may drive the implicit gender bias.


Because someone has got to talk about the kid drowning at the bottom of the pool.




References

Kanze, D. The real reason female entrepreneurs get less funding, TedxPeachtree.


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