Not long ago, Harvard did a detailed study of how venture capitalists interacted with male and female founders. It was titled, Male and Female Entrepreneurs Get Asked Different Questions by VCs — and It Affects How Much Funding They Get . The research team observed (and recorded) Q&A interactions between 140 prominent venture capitalists (40% of them female) and 189 entrepreneurs (12% female) that took place at a startup funding competition. The team then tracked all funding rounds of these teams that launched at the competition. The firms were comparable in terms of quality and needed capital, but they raised vastly different amounts of funding over time. The report stated, ” Male-led startups in our sample raised five times more funding than female-led ones.”
This is disappointing, even shocking, although not necessarily surprising to women entrepreneurs, but it has implications for all entrepreneurs. When the Harvard researchers analyzed the video transcriptions of these sessions, they learned that “…venture capitalists posed different types of questions to male and female entrepreneurs: They tended to ask men questions about the potential for gains and women about the potential for losses. We found evidence of this bias with both male and female VCs.”
So the very questions asked by potential investors frame the discussion – as the researchers also found that entrepreneurs tend to respond in the way framed by the questioner. When VC’s ask male entrepreneurs questions about potential, achievements, advancement, and opportunity and focused on the upside of the business, it is called taking a “promotion orientation”. But they ask female entrepreneurs so-called “prevention orientation” questions, which focus on “not losing” including safety, responsibility, security, and caution, rather than about the opportunity.
The report continues, “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.” Even more tragically, the Harvard team recounts that, “This difference in questioning appears to have substantial funding consequences for startups…we observed that entrepreneurs who fielded mostly prevention questions went on to raise an average of $2.3 million in aggregate funds for their startups through 2017 — about seven times less than the $16.8 million raised on average by entrepreneurs who were asked mostly promotion questions. In fact, for every additional prevention question asked of an entrepreneur, the startup raised a staggering $3.8 million less, on average.”
Think this is serious now? Looking at some of the recently disgraced “unicorn” CEOs (and investors!) who flaunted not only convention and integrity but, at least in some cases, the law, and still attracted billions of dollars in funding, it is pretty clear that the venture industry and the silicon valley culture, reward primarily men who self-promote and oversell themselves and oversell the opportunity. Basically those who are willing to pour it on get the funding.
What to Do? So what are entrepreneurs of all types to do when faced with VC’s talking down their opportunity, (or for that matter, male entrepreneurs who are not self promoters)? The Harvard study itself gives us the ammunition. If a potential investor doesn’t ask you about the opportunity, you redirect BACK to the opportunity. If they ask you about reducing risk or express fear of loss, redirect BACK to the opportunity. Say things like “We can talk about risk management later, but let me walk you through the opportunity”.
In the words of the Harvard researchers, “So an entrepreneur who is asked to defend her startup’s market share would be better served by framing her response around the size and growth potential of the overall pie than by merely stating how she plans to protect her share of the pie.” Amen!
Sometimes you may have to call out the elephant in the room and say “if I were a male entrepreneur you’d be more interested in the opportunity than the risk, why don’t we focus on the opportunity?” Now, I know, that seems risky, especially when you are so focused on getting that round of funding, but, let’s face it, if a “potential” investor has already decided to focus on how you might lose their investment, not on how you might hit a home run, they’re not really a potential investor at all.
Don’t forget, if you’ve vetted your potential investors and any investor you meet with already meets YOUR qualifications as a “perfect investor” for your startup, you are far less likely to run into this. Because they will already know they are interested in your space. Want to know more? Check out our online content including our online course called Designing the Perfect Investor – Raising Money for Your Startup. As part of that course, Nicole offers a workshop that she calls “How Startup Investors (Really) Work” helping entrepreneurs understand how startup investors, including angel investors and venture capitalists, look at startups.