Why female startup founders find it harder to secure investment

Venture capitalists don’t ask male and female founders the same questions when making investment decisions, and hold a number of preconceptions, says the founder of a network aimed at empowering women

We hear a lot about getting more women on boards, more female CEOs, more girls to study STEM subjects. But there is another significant gender gap much less talked about.

It is the one affecting female entrepreneurs. Several reports have shone a light on this. For example, a 2019 study by the British Business Bank found that for every £1 GBP of venture capital (VC) investment in the UK, female founders got just 1p (£0.01 GBP). Mixed gender founder-teams got 10p (£0.1 GBP), and the rest? It went to all-male founders. That’s equates to £5bn of investment going to all-male founders.

The situation in the US is no different. One study, by Pitchbook, showed that companies with female founders only raised 2.3% of VC funding in the US.

As a two-time startup founder myself, I was invited to 11 Downing Street for the unveiling of the British Business Bank research, commissioned by the UK Treasury. It was also attended by VCs, so to my delight I got to ask that key question: ‘why don’t investors put their trust in women?’

Implicit bias and preconceptions

Their answers were honest, but brutal. Some confessed that when they see a young woman, they assume that her incentive to start a business is to leave the rat race to juggle a bit of work with the real job of being a mum. This is essentially labelling any women within a 20-year child bearing window as a ‘mother with a hobby.’

This is compounded by the inconvenient fact that the average age of founding a business is 42, according to researchers from MIT, the Kellogg School and the US Census Bureau. Among the fastest-growing tech startups, the average age is 45. This age is for men and women, so clearly it has nothing to do with wanting to make time for school runs. It takes life experience and industry expertise to run a successful business – 42/45 seems about right to me.

Another VC partner admitted he always sends a junior 20-something trainee to interview the female founders but is inclined to send someone more senior to male founders.

I’ve been in that pitching chair myself when I started to seek funding for my first startup in 2016. It was around the time that the #MeToo movement was gathering momentum and I thought, ‘it’s time to get big or go home’. Yet, when I started early conversations with investors, or people who knew about investing, I got a distinct feeling of doubtfulness. Their questions seemed to be negatively slanted: ‘don’t you think the bubble might burst?’ instead of the more positive ‘where do you see your business in X years.’ Other women have said similar things.

Lines of enquiry at investor interviews

My suspicions of this negative interview bias have turned out to be substantiated. A 2017 study by researchers at Columbia University and Harvard Business School looked at 189 videos of presentations to investors (of which 12% were given by female entrepreneurs). They found that 67% of questions to the male entrepreneurs were ‘promotion-oriented’, such as, ‘do you think your target market is a growing one?’ For female founders, 66% of questions were ‘prevention-oriented’, asking them questions along the lines of how long it would take them to break even or how they’d defend a business challenge.

Investors are supposed to be good at spotting trends. So you would think that they’d have taken notice of the many reports that show that female-founded businesses end up being more successful. Linked to the British Business Bank research, the UK Treasury also commissioned the Rose Review, looking at ways to promote female entrepreneurship. One of its conclusions was that female-founded businesses could be worth £250bn GBP to the UK economy if women started and scaled new businesses at the same rate as UK men.

Eliminating doubts

I can see why. I’ve had three children over five years, while running two businesses and I never took maternity leave. My businesses grew the most when I was pregnant. People joke that when women are pregnant they go into ‘the nesting phase’ because they are programmed to get their house in order but actually it’s a hyper-efficient state which applies to all areas of life, including their business. Think about it, you’re not likely to be attending parties or socialising in bars. You’re not distracted by anything else. Pregnant women get things done!

We can’t fully blame the funding gap on ‘old boys network’ bias though. Women themselves need to put themselves forward more. In the same way that women don’t ask for pay rises as much as men, on average, they also tend to harbour more doubts that they have the skills to grow a business. They can suffer from imposter syndrome and worry themselves out of things. If nine people say ‘yes’ and one says ‘no’, a sizeable proportion of women will listen to the one ‘no’.

Start early

So how can we address the problem? It should start at grassroots level, with teachers and parents. Gender biases stem from the messaging we give to children as they grow up. We need to instil in them the belief that they can make something of themselves regardless of gender.

Take the cringeworthy example of the covers of recent editions of teenage publications, Girls’ Life and Boys’ Life. The former flashed headlines that include ‘fall [autumn] fashion you’ll love’, ‘wake up pretty’ and ‘your dream hair’. The latter featured one bold headline, ‘explore your future: astronaut, architect, firefighter, chef?’

It will take time to fix this skewed messaging. But in the meantime, the VC industry could do a lot to help address the problem by educating their teams. They could put on workshops and seminars to hear from female founders, or invite successful female entrepreneurs to give talks that allow them to share their expertise and inspire others.

That’s what we are doing with the Sistr network, a platform to enable women to impart wisdom and offer advice, free from bias and judgment. My vision when I started the network was to harness untapped female talent by connecting strong, successful and knowledgeable women. Perhaps investors and VCs could learn something from this approach. They might even pick up some star-performing portfolio companies too.

Emma Sayle is the CEO and Founder of networking platform, Sistr.  

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