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Entrepreneurs looking for advice on pitching their business ideas will find abundant resources on what to include in their presentations but less about how to respond to questions. Is it wise to showcase strategies to deal with a project’s risks? Is it smart to show competitive aggressiveness? Are there downsides to being too intense?
Evidence suggests that the answers to those questions depend in part on whether you’re male or female.
Recent studies in the U.S. and Europe have explored ways that the fundraising process may be gender biased. Understanding the dynamics at play could help explain why, for instance, venture capitalists (VCs) overwhelmingly provide more venture capital to male entrepreneurs than to female entrepreneurs. In the U.S., women-led companies received only 2.2% of venture capital dollars in 2018.
Research published last year in the Academy of Management Journal observed gender bias in the Q&A interplay between investors and entrepreneurs. Coauthors Dana Kanze, Laura Huang, Mark A. Conley, and E. Tory Higgins found that male entrepreneurs tend to receive “promotion-focused” questions (in the domain of gains) and female entrepreneurs tend to receive “prevention-focused” questions (in the domain of losses). This difference in questions helped to account for the gender disparity in their funding amounts.
Our research takes this investigation an important step further. We examined not only verbal interactions, but also how other signals in pitches trigger thoughts that cause VCs to approve or deny funding for female and male entrepreneurs.
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Our results suggest that there are specific ways for women to be more successful in venture capital pitch situations: Their presentations can sidestep gender stereotyping traps by avoiding discussions about their willingness to take on risk. Women should also find out about the gender composition of the panel they’re pitching to so they can prepare their language accordingly. These strategies may be useful for women making pitches for initiatives within established organizations, too.
Gender Stereotypes in Venture Funding
In Europe, the primary research context for this study, venture capital has been a major source of funding for years. In the second quarter of 2019, European startups had a record level of venture capital investment, with 9.3 billion euros, or $12.7 billion at the time, invested. Women-run companies make up about 22% of Sweden’s businesses (some sources say 29%) and about 25% of U.K. businesses. But Swedish and U.K. women do not receive a corresponding share of venture capital funding: Women-owned businesses receive only 1% of Swedish venture capital. In the U.K., the portion is less than 1%.
We set out to create a large-scale study of VCs’ decisions regarding male and female entrepreneurs. Overall, we collected data from more than 200 real decision-making situations and the questions VCs raised when evaluating applications. The majority of the pitches were from Sweden and the U.K., with some entrepreneurs from other countries included.
Our study let us see closely how entrepreneurs signaled their competitive aggressiveness, autonomy, innovativeness, proactiveness, and propensity for risk-taking. Our analysis is based on VCs voicing their thoughts about the ventures they assessed, with these thoughts recorded and transcribed. We also met with many of the VCs in person to discuss their investment decisions.
This rich data set allowed us to explore the origin of gender stereotypes — namely, whether they are influenced by differences in women’s and men’s intensity when signaling entrepreneurial qualities, or stem from VCs’ cognitive processing of these signals and their gender associations — and ultimately investigate whether and how these stereotypes affect funding distribution.
We found that VCs evaluate male and female entrepreneurs by different standards. The more that men signal competitive aggressiveness and a willingness to take risks, the more promotion questions are raised in VCs’ minds. In contrast, we found that the more women signal these same kinds of entrepreneurial intensity, the more prevention questions are triggered in VCs’ minds. And in keeping with previous research, we verified that when more promotion questions are raised, VCs approve a larger share of the requested funding. When more prevention questions are triggered, VCs approve a smaller share of the requested funding.
Working Around Gender Stereotypes
Savvy entrepreneurs anticipate potentially biased responses to their pitches and plan accordingly. We identified certain tactics that women could use to keep audiences engaged and confident about the potential of their ideas.
Avoid pitching a willingness to take risk. Although entrepreneurial qualities such as a willingness to take risks have been linked to successful venturing and pitching, we found that such qualities only confer value to the communication of male entrepreneurs. Women who communicate the same willingness to take risks will pay for it in the prevention-dominated dialogue with the investor panel. Gender stereotypes portray female and male entrepreneurs differently, and such stereotypes interfere with how signals of risk are perceived in the minds of the investors.
We found that in dialogues where women stress risk, the likelihood of obtaining a positive funding proposal was significantly reduced. Avoiding words such as risk and defend increased the likelihood of women getting what they were asking for.
Focus on promoting goals and upsides. Funders are more likely to invest in pitches that highlight the promotion of upsides rather than the prevention of downsides. It’s important for women specifically to pay attention to the difference between promoting how they will advance their business goals instead of defending how they will prevent downsides.
Conversations that focus on the gains and upsides of a venture increased not only the chances of receiving funding, but also the businesses’ valuations as well. Successful female entrepreneurs navigated away from downsides: For example, if asked to report on the opportunity’s market share, they were sure to underscore its market potential as well. When asked how they intended to combat competitive threats, they also made clear how they were uniquely positioned for growth. In this promotion-oriented stage of the fundraising process, it was important not to be defensive when being asked critical questions.
Know the audience. Our research shows that the gender composition of the investor panel also affects these important conversations. Investors don’t make decisions in a vacuum; other panel members steer them in ways that aren’t necessarily blind to gender. For instance, all-male panels tend to put an even stronger focus on prevention than panels with a degree of female representation.
Women are well served to find out about the gender makeup of their audiences in advance of pitching, and they should always be prepared to transition a dialogue from prevention of risks to promotion of returns.
These findings indicate that gender-neutral venture evaluation is a false premise. Indeed, our results show that investor standards are applied in gendered ways. Why does entrepreneurial intensity scare off funders — but only for certain entrepreneurs? If intensity and willingness to confront risk and a competitive market is a desirable trait in a male entrepreneur, there is no tactical reason these same qualities should be undesirable in a female entrepreneur.
For women entrepreneurs who are actively seeking venture capital funding — and, by extension, women who are pitching ideas for new ventures to decision-makers within organizations — the near-term reality is that they must navigate within this flawed system. Being aware of the subtle but treacherous obstacles they will face, women can be better prepared to steer the conversation away from these pitfalls.