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Women, venture capital and bias

Mark Garrison Aug 7, 2015

Women, venture capital and bias

Mark Garrison Aug 7, 2015

Entrepreneurs face many challenges. Getting people to buy what they’re selling and running a business are hard enough. They also need to convince investors to risk their money on their dreams. That requires a great idea, talented team and a fantastic pitch.

Many female entrepreneurs find the path can be trickier for them, and research into the topic backs that up. Even some of the smartest investors in the world are vulnerable to the same kind of unconscious biases that affect us all. Imagine two groups of investors asked to judge an entrepreneur’s pitch. In separate rooms, each group watches a different video presentation for a startup. But the videos actually aren’t all that different. In fact, they’re practically identical: Same idea, same numbers and same slide deck. The only difference is the speaker’s gender. 

The scenario comes from a series of experiments by researchers from the business schools at Harvard, University of Pennsylvania and MIT. The key takeaway from their research is that the investors preferred male entrepreneurs to the females, even when the pitches were exactly the same.

That experiment adds context to existing hard data that paints a picture of a uniquely challenging fundraising environment for female entrepreneurs. A 2014 analysis by the Diana Project shows that of $50 billion in venture capital invested during 2011-2013, only 3 percent went to companies with female CEOs.

Findings like these are anything but academic to people like Jocelyn Leavitt, co-founder and CEO of Hopscotch, a New York startup founded by women in 2013. Hopscotch has a popular app that makes programming visual and easy for kids. With 2 million downloads and counting, Hopscotch has enough young users to merit attention of investors.

“We raised $1.2 million initially, and then we raised more afterward, so we’re now at about $3 million,” Leavitt says. “Where we’ve grown from where we started has been remarkable.”

That kind of money is a strong vote of confidence for what she and her co-founder have built. Leavitt can go on about the many ways that starting a company with a woman is great. But when it comes to fundraising, she sometimes wonders what it would be like if she and her co-founder were males. She remembers a situation where an investor passed, questioning whether the team could meet technical challenges.

“We didn’t know, but it felt a little bit like if we had been guys, maybe we wouldn’t have gotten that kind of feedback,” Leavitt recalls.

Like many female founders, Leavitt stresses that all entrepreneurs—men and women—face challenges, and that she’s grateful her company has had fundraising success. Talking about investor bias is a difficult topic for entrepreneurs. There’s a lot of pressure on startup founders to put a positive image forward. Those who talk about bias worry about being branded as complainers. So many of the conversations about the fundraising challenges women face take place in private. Leavitt says female founders talk to each other about the perils of raising money, wrestling with issues male entrepreneurs rarely have to consider.

“Sometimes women will be like, ‘I should wear a wedding ring to make sure that this investor doesn’t hit on me, versus, I should not wear a wedding ring because I don’t want to have to deal with questions about whether I’m gonna be having kids anytime soon,’” she explains, adding that she opted to wear her own wedding band when pitching.

No one is saying all venture capitalists are sexist. They ultimately want to back people who’ll make them rich, regardless of gender. They believe they make the best possible choice given available information. But they almost certainly don’t. None of us can, because we all fall victim to any number of unconscious biases. To get a sense of how they can get us, think of a startup founder. For many, what comes to mind is the Facebook guy, the Google guys, but typically guys.

“If we see someone who looks like Mark Zuckerberg, let’s say, we may think they’re more likely to be successful because they fit in with that idea of an entrepreneur based on what we see in the media,” says Elizabeth Webb, who teaches a class on decision making at Columbia Business School. “All of that kind of works together at a very unconscious level to inform our judgments and our evaluations.”

People are especially vulnerable to the influence of unconscious biases when judging risk, what venture investors do every day. And the level of risk is high in that field. Even very successful investors still lose piles of money on companies that fail. Melissa Bradley has been an entrepreneur and investor who has backed female and minority businesses. She says the risk involved in venture investing can push many investors to stick with what they know, which favors men.

“Venture funds raise their money based on the performance of prior portfolios, and so if it ain’t broke, don’t fix it,” she explains.

Whatever the situation may be, awareness that an unconscious bias is at play doesn’t necessarily make things easier for women working to fund their businesses.

“There’s not really a lot that you can do besides just really wowing people,” Leavitt says. 

Reducing the impact of unconscious bias is challenging, in part because few people can admit to being vulnerable.

“People often just think, ‘Well, I’m not this type of person. Other people fall victim to this, but I don’t,’” Webb says.

But that isn’t the case, Webb explains. Anyone can fall under the sway of decision biases, which means they need adjust for them. Like so many other issues, the first step is often just admitting you have a problem.

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