Why do women get such a small share of venture capital?

Venture capitalists reward male entrepreneurs with bigger investments than comparable female entrepreneurs, a new study shows.
Venture capitalists reward male entrepreneurs with bigger investments than comparable female entrepreneurs, a new study shows.

Women account for about 40 percent of founders of U.S. companies but get only 2 percent of the nation’s venture capital investments.

It’s long been proffered that women tend to start “lifestyle businesses” with lower growth paths and thus seek less money.

But an academic study to be presented in August at the annual Academy of Management conference suggests the funding disparity also lies in questions entrepreneurs are asked by potential investors.

Researchers at Columbia University and the University of Pennsylvania analyzed video footage of TechCrunch Disrupt start-up funding competitions in New York from 2010 through 2016. That access, to a nationally representative funding contest, let them monitor interaction between funders and entrepreneurs who pitched their businesses.

The realization: Investors’ questions varied depending on whether a man or a woman made the pitch. The study concluded that bias in favor of male entrepreneurs was “deeply ingrained” and “essentially unconscious.” And they detected a male-favoring bias even when the venture capitalists were women.

The research paper’s title, “We Ask Men to Win and Women Not to Lose,” describes the findings. Researchers saw that questions to male entrepreneurs focused on their potential for business growth. Questions to women tended more toward asking for assurance of a safe return on investment.

The finding stunned Darcy Howe, managing director of the KCRise Fund, a venture capital group in Kansas City.

“My first reaction was to ask if I do that — and I’m a woman,” Howe said. “It’s a very unconscious thing. We need to ask ourselves if there’s anything in the way we ask questions or treat people, men or women, that we should change to model high expectations for everyone.”

The researchers said funders’ questions tended to cause men and women to frame their business pitches differently. Men positioned themselves as “playing to win” and were more attractive to investors than women who were asked “loss prevention” questions.

The authors confirmed statistically that the TechCrunch Disrupt entrepreneurs came to the competitions with comparable funding needs. Yet the seven years of data showed that men raised an average of $17.1 million each, or 5.14 times the $3.3 million average raised by women-led start-ups.

The competition videos clearly showed that men were asked more “promotion-focused” questions and women got more “prevention-focused” questions.

“Entrepreneurs, whether men or women, likely do well to keep that in mind, staying on topic while weaving promotion into their responses,” said researcher Dana Kanze.

Those are words of wisdom to cross the workplace landscape. They apply to anyone seeking a job, a promotion or a raise. Emphasize the growth potential with confidence.

Diane Stafford: 816-234-4359, @kcstarstafford