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The VC World Can Support Female Entrepreneurs’ Success By Neutralizing Bias

Dr. Silvia Mah, partner at Ad Astra Ventures, helps women founders grow innovative startups tackling big ideas.

For the past few years, investment numbers (funds received and size of investment) for female entrepreneurs have continued to grow. It’s an encouraging shift from previous decades of female entrepreneurs receiving little to no capital. Wired reports, “Startups with a woman founder raised $25 billion in the first half of 2021—more than the total amount raised by women any full year prior.” And while the incremental changes are noticeable, we aren’t close to where we need to be. 

Female i​nvestors, entrepreneurs and business owners constantly discuss this shift in the women’s innovation economy. We’re advocating for the best female-led startup deals within our networks, championing more mompreneurs to scale their businesses, actively funding and writing checks, promoting each other more authentically, and using the power of the purse to buy from women-owned businesses. But it’s a bit of a compounding problem. Patterns are being broken by changemakers, but decision-makers don’t know how to handle the intersection of innovation, impact, leadership and true advocacy.

As a female investor focused almost exclusively on womxn- and BIPOC-owned and operated businesses, I see firsthand their journeys upstream against limited access to economic opportunity. After years of witnessing these founders' struggles and limited access to capital, I’ve determined that there are certain things the VC industry can do to level the playing field. 

1. Funding for female entrepreneurs needs to continue into Series A. 

There is story after story about the guys who raise millions of dollars for their seed rounds with little more than a good idea. But when a female looks for VC funding – even with metrics showing success, patents and recurring revenue – it’s much harder to secure capital. Funding for female founders in the seed round has increased from the teens to the twenties in the last 12 years. But in subsequent rounds, from angels to institutional investors, there’s a huge cliff, with the numbers plummeting into single digits for Series A capital allocation.

Harvard Business Review puts forth a solid hypothesis for why this happens: the confidence gender gap. ”Women tend to undervalue themselves compared to men in competitive situations, and consequently come off to potential investors as ‘less sure of themselves.’” Many VCs admit that when it comes to investing in a company, their decision is often driven by a gut reaction to the pitch, along with doing what they’ve always done: following a pattern of not investing in determined, gritty successful women CEOs. And while women tend to focus on metrics and momentum, men are better at positioning the bigger picture. 

Not only are women better at investing – Fidelity recently published a report that revealed women investors outperformed their male counterparts by almost .5% over a 10-year period – female investors are more likely to see through shiny and overconfident pitches and see the real meat of an opportunity. Female investors also tend to invest twice as much in female founders, a comprehensive study led by the Angel Capital Association revealed. In addition, angel investors are more diverse than VCs, both geographically and with more participation by women. Series A rounds are devoid of gender representation on both sides of the venture table. 

2. Eliminate implicit bias in VC funding.

The unspoken bias in VC funding can be hard to recognize, which is why so many studies and research in recent years have focused on it. Harvard Business Review reports that there is significant gender bias in the VC investment process, most glaringly in the pitch because the bias can go undetected, yet have significant decision-making effects. In one study, identical pitch decks (slides and script) were presented by both female and male voices to participants. The presentations done by men were more persuasive than the ones by women, and were 60% more likely to achieve pitch competition success. 

There is also bias in the way female and male entrepreneurs are questioned during a pitch. Women are asked more prevention-oriented questions (“How long will it take your business to break even?”), while men are asked promotion-oriented questions (“Describe how you will grow the ideal customer base of your startup?”).  Prevention encourages a mentality of not failing when scaling a startup, while promotion uplifts successful milestones and winning.

Groundbreaking research conducted by professor Dana Kanze supports this. "We found that 67% of the questions posed to male entrepreneurs were promotion-oriented, while 66% of those posed to female entrepreneurs were prevention-oriented." This discrepancy has a direct correlation to funding these startup founders receiveds. "For every additional prevention question an entrepreneur is asked, he or she can expect to raise $3.8 million less in aggregate funding."

VCs, both male and female, need to adopt promotion-focused actions and questions.

3. Women need to recognize they are leaders. 

The greatest success stories result from female entrepreneurs truly believing they are leaders. This belief system is one of the biggest hurdles an innovator faces when evolving from founder to CEO. We need to help women debunk their own biases and help them harness their innate traits that make them purposeful leaders and smart investment opportunities. 

Empathy is a feminine trait that – over the past two years – has become a tentpole of great leadership. Female entrepreneurs leading innovative startups should lean into it. With the world of work changing, especially during the pandemic, employees are responding better to leaders who lead with understanding and empathy. The more women lean into these traits – while also finding the confidence to believe in themselves and their ideas – the better they’ll fare. 

Female investors understand this, and can continue championing and funding the CEOs who embrace this type of authentic leadership. This is another reason female investors make incredible partners for burgeoning female entrepreneurs. The female innovation economy invests in each other because investors can identify new diverse opportunities and women CEOs can scale capital-efficient startups towards higher returns and higher performing diverse teams. 

Real progress will happen when both investors and entrepreneurs reevaluate and update the pitching and investing process and work towards neutralizing – and eventually eradicating – invisible biases across the investment community. Once this happens, women entrepreneurs will get more opportunities, and the community as a whole will be more balanced resulting in bigger opportunities and, most importantly, more great ideas getting the chance to succeed.


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