Just adding more women VCs won’t end the funding gap, and here’s why

29 Jun 2017

Image: antoniodiaz/Shutterstock

When it comes to solving the mystery as to why women tend to get less VC funding than men, the answer is often in the questions being asked.

The situation for existing women entrepreneurs seeking venture capital (VC) funding is in somewhat of a bleak state at the moment, with research earlier this year finding that despite greater diversity efforts, the funding gap is actually getting worse.

It is especially dire for women of colour, with just 0.2pc of US VC funding going to black women founders, according to research last year.

So what is it exactly that makes women more likely to receive lower amounts of funding than men, at least in the US?

According to a new study published in the Harvard Business Review, the answer is simply a matter of phrasing, especially when men and women entrepreneurs pitch to a team of VCs.

By analysing a total of 140 Q&A interactions between VCs (40pc women) and 189 eager entrepreneurs (12pc women), a clear picture began to emerge to the researchers.

Using analytical tools and video footage of their pitches at TechCrunch Disrupt, they were able to spot that the questions being asked of entrepreneurs tended to vary based on their sex.

Men were generally asked how much of a profit they were expecting to make, whereas with women, most VCs tended to ask questions on the potential for loss in their businesses.

Promotion v prevention

By following the psychological theory of regulatory focus, the researchers were able to spot whether the questions being asked were ‘promotion’ (positive) or ‘prevention’ (negative).

Of all the men, 67pc were asked promotion questions, while 66pc of women were asked prevention questions.

To give some examples, a promotion question could be: ‘What major milestones are you targeting for this year?’

On the other hand, a prevention question might look something like this: ‘How predictable are your future cash flows?’

Further research into how these entrepreneurs got on after their pitches showed that those asked prevention questions went on to raise an average of $2.3m for their start-up, while those asked promotion questions achieved substantially more, at an average of $16.8m.

More women VCs does not equal more funding

It also seemed to show that negativity breeds negativity, as 85pc of entrepreneurs asked prevention questions responded with a matching attitude.

By responding to prevention answers with a promotion, however, respondents were likely to boost their funding hopes to just under $8m for their start-up.

“Our findings suggest that the gender gap in funding is not likely to narrow simply because more women are becoming VCs,” the researchers said.

“Being cognisant of this phenomenon can help investors approach Q&A interactions more even-handedly. By posing a balance of promotion and prevention questions to men and women, investors grant all start-ups an equal chance to display their worthiness, and may even improve their own decision-making in the process.”

Colm Gorey was a senior journalist with Silicon Republic