The gender gap in angel & VC funding for female founders is wide. Only 24% of female founders receive angel investment dollars, 5% of female-led startups receive VC funding, and less than 1% of founders of colors receive VC funding. There has been an upsurge in the numbers of female angel investors, as reported in the 2017 American Angel Report, of angels who started investing within the last two years, 30% of these are women. Likewise in the VC world, female VCs are up from 3% of all VCs in 2014 to an estimated 7% in 2017. Why does this matter? The well-regarded Diana Project, a study by Babson College, concluded that venture capital firms with women partners were more than twice as likely to invest in companies with women on their management teams than those without women partners. This homophily was thought to be the answer, yet the gender gap persists.

Neutralizing bias by being aware of it and pro-actively managing it on the spot is how we prepare female founders to thrive at Ad Astra Ventures and hence, work on closing that gender gap. We have designed curriculum and programming around the data on gender, from leadership data to success factors, to the DNA of focus. The work done by Dana Kanze brings meaning to our work & guides our advising/mentoring principles when working with BOTH investors and entrepreneurs. LET’S DIVE IN.

Female founders are asked more prevention-oriented questions and male founders are asked more promotion-oriented questions. From the original research study abstract, “A field study conducted on question-and-answer interactions at TechCrunch Disrupt New York City during 2010 through 2016 reveals that investors tend to ask male entrepreneurs promotion-focused questions and female entrepreneurs prevention-focused questions and that entrepreneurs tend to respond with matching regulatory focus.”

That is unconscious bias.

Interestingly enough, trying to understand why homophily across the venture table has not been enough over the years (even though so, so important), gender did not change the outcomes. There was no difference in the outcomes observed, as the study had approximately equal representation of gender in the VC pool, “we observed Q&A interactions between 140 prominent venture capitalists (40% of them female) and 189 entrepreneurs (12% female)”. This was distilled down into an HBR article that is a MUST READ! An inspirational TEDx video of Dana Kanze explaining her research can be found here, a MUST SEE!

Male and female VCs had the same trend: female founders received more prevention-oriented questions.

Why is this important in the grand scheme of things? Founders receiving capital and tagged as “successful” in the funding landscape (pattern recognition at work!) are the ones receiving capital, hence, smaller amount of funding and smaller rounds of funding for female founders than male founders. It’s a stunning statistic that in 2018, an unusual $12.8 billion corporate investment was made in Juul (male-founded & lead), but in that SAME year, U.S. female founders raised $2.88 billion split across 482 teams. Back to asking the questions, Dana Kanze’s research can be summed up in this staggering set of data:

  • 67% of questions posed to male entrepreneurs were promotion-oriented
  • 66% of questions posed to female entrepreneurs were prevention-oriented
  • With every additional prevention question asked, the startup raised, on average $3.8million less

When asked more prevention-oriented questions, significantly less startup funding raised, $3.8 million less!

What is of particular interest to us at Ad Astra Ventures, when we are interested in HOW founders can adapt to these biases, the researchers also did an experiment. “By experimentally testing an intervention, we find that entrepreneurs can significantly increase funding for their startups when responding to prevention-focused questions with promotion-focused answers.” AHA! To neutralize this unconscious bias, even though founders could be asked prevention-oriented questions, they can ANSWER and take CONTROL of the scenario and ANSWER with promotion-focused answers.

Female Founders: change the way you ANSWER the question.

Conversely, investors who want to invest in more diverse founding teams, especially female-led startups, by purposefully asking promotion-focused questions, there will be better answers. We have seen that conversations become richer, financial projections are elevated from “When will you get to break even?” to “How many customers will you obtain year after year?”. This PROMOTION-focused question might lead to an investor knowing and introducing the founder to that customer, thus a growth curve of “up and to the right” occurs!

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Investors: change the way you ASK the question, simply ask yourself if it’s a promotion- or prevention- focused question.

The vision of Ad Astra Ventures is to “get to even”, even representation of angel investors being women, of VCs being women, and female founders receiving capital. Clearly, we aren’t there yet. But, at least for now, with EVERY QUESTION asked, we are getting closer.