IMPLICIT GENDER BIAS IN STARTUP FUNDING

Male entrepreneurs are twice as likely as female entrepreneurs to raise a capital upwards of $100,000 – according to an infographic released by StartupNation. The same infographic also reveals that, although, women-owned businesses make up for 39% of the workforce, women only account for 8% of employment and 4% of revenue. There are many other gruelling statistics that will reveal gender bias and the grim state of gender-based inequality in the workplace. In this piece, we’re going to look at how gender bias in the workplace affects women in fundraising.

The apparent bias 

It can’t be stressed enough how gender bias in the workplace translates even more so harshly in the world of entrepreneurship. The challenges faced by women entrepreneurs, purely because of their gender, has driven women to work from home rather than step out and run a business, with 68% of women entrepreneurs working from home. In addition to this, women entrepreneurs also quoted it to be twice as difficult as men to find a proper support system. 

This lack of a proper support system motivates female employees to find a “second job” where their main and primary focus should be on their startup venture.  A major obstacle faced by women entrepreneurs is the problem of cash flow, with 73% of women business owners troubled by these issues.  This bias extends a lot further down the lot with over 48% of female entrepreneurs quoting lack of availability of a proper guide, mentor, or a helping hand with their business.

The real-life scenario

Dana Kanze, who studies gender biases in startups for a living, has a very insightful theory on why there is a gap in fundraising for women business owners. She calls it the promotion and prevention focus theory. This theory of Dana’s is based upon a theory in social psychology called ‘regulatory focus’ developed by Professor Tory Higgins. Dana came across this theory while studying startups at Columbia Business School.  

According to Dana,

“A promotion focus is concerned with gains and emphasizes hopes, accomplishments and advancement needs, while a prevention focus is concerned with losses and emphasizes safety, responsibility and security needs. Since the best-case scenario for a prevention focus is to simply maintain the status quo, this has us treading water just to stay afloat, while a promotion focus instead has us swimming in the right direction. It’s just a matter of how far we can advance.” 

Dana says that the great divide between the funds acquired by men and women for their  business is entirely, because of women being treated with a prevention focus while the men are treated with a promotion focus approach by interested investors. Speaking from a personal experience of raising funds for startup funding for 5 years,  Dana experienced a stark contrast in the kind of questions she was asked with respect to her male co-founder.

I was getting asked a very different set of questions than my male co-founder. I got asked just about everything that could go wrong with the venture to induce investor losses, while my male co-founder was asked about our venture’s home run potential to maximize investor gains, essentially everything that could go right with the venture. He got asked how many new customers we were going to bring on, while I got asked how we were going to hang on to the ones we already had. ” This perplexed Dana a lot, she dug a lot of research material in her social psychology teachings.  Digging into this research Dana finally realized that this was the regulatory focus effect in play here.

Extending an olive branch

Dana is a progressive woman and although this gender bias agitates her, studying these biases is a part of her ongoing PhD pursuit and she extends an olive branch in order to resolve this issue. She says “So to my investors out there, I would offer that you have an opportunity here to approach Q&A sessions more even-handedly, not just so that you could do the right thing, but so businesswoman!at you can improve the quality of your decision making. By flashing the same light on every start-up’s potential for gains and losses, you enable all deserving start-ups to shine and you maximize returns in the process.”

So to all the start investors out there, watch out and be unbiased, it’s the rise of the female businesswoman!

IA Team

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