Gender Bias in Venture Capital Funding

By Jade Hochberger**

A 2017 Harvard Business Review article by Dana Kanze has introduced new insights into the issue of gender bias in venture capital funding.

The U.S. is home to over 30 million businesses, 38% of which are owned by women. Despite holding over a third of the so-called pie, these women-run businesses receive only about 2% of all venture capital funding in the United States. Some might argue that if there were simply more women venture capitalists, the funding gap would narrow. But unfortunately, the data has shown that in recent years, there have been more women investors. Women made up 3% of all VCs in 2014, and this figure increased to an estimated 7% in 2017, yet the funding gap has widened.

In the Harvard Business Review article, researchers observed this apparent gender gap in venture capital funding by analyzing investor-entrepreneur Q&A sessions at the TechCrunch Disrupt New York event. Their observations uncovered a deeper reason as to why female entrepreneurs receive less funding on average than their male counterparts: an apparent gender-based bias among investors, male and female alike, in the types of questions asked of female entrepreneurs as opposed to male entrepreneurs.

The apparent gender bias among venture capitalists is related to the psychological theory of regulatory focus, which suggests that people tend to pursue their goals by focusing on either promotion or prevention. Oriented with promotion, the focus is on gains, hopes and ideals, achievements, and advancement. Conversely, a prevention focus is concerned with losses, safety and security, vigilance, and responsibility. In analyzing the types of questions that VC’s asked entrepreneurs, researchers observed that when investors questioned men, they tended to employ a promotion-oriented approach, but when questioning women, they tended to employ a prevention-oriented approach. The overall investigation discovered that the prevalence of prevention questions for women helps explain the relationship between entrepreneur gender and startup funding.

Researchers observed a majority, 85% of respondents, mirrored their answer in the style of the question asked (a promotion question begets a promotion answer, same for prevention; see chart at end of article). So, as the bias was evident in the questions investors asked, the answers supplied by a majority of those entrepreneurs led the men to be awarded more money, and the women, less. It seems those men and women who respond in kind are perpetuating the cycle of gender bias in the Q&A process, and this in turn exacerbates the funding gap.

This is not to say there is no glimmer of hope. The researchers designed a second experiment in which they were able to confirm the benefits of switching orientation. In the original observational study, angel investors allocated an average of 1.6 times more money to the women who gave promotional answers to prevention questions, than those women who answered in kind to the prevention questions. Similarly, in their experiment, researchers facilitated ordinary people to allocate funds to men and women; and, once again, when women were asked a prevention question but gave a promotion answer, they were allocated an average of about 1.7 times more money than those women who mirrored the prevention question with a prevention answer. These findings suggest that promotion has advantages over prevention. This is what the researchers called an actionable silver lining. While we would like for investors to be more cognizant of gender bias in the Q&A process, women should also prepare for the worst: female entrepreneurs need to not only recognize the orientation of an investor’s question, but they also need to prepare themselves with promotional answers that could financially benefit their startup. Yes, women entrepreneurs will have to work twice as hard to prepare for and mitigate the gender bias in venture capital funding. But, just between us girls, I’m pretty sure they are accustomed to this.

**Jade Hochberger graduated from Trinity College in Hartford, CT in 2017, with a BA in Cultural Anthropology. With a background in anthropological fieldwork, User Research, and UX Design, she is a recent addition to the Mei & Mark team.