In our dreams, it’s 2020, and venture capital is finally equitable. Women earn just as much as men do, there are as many female entrepreneurs as male entrepreneurs, and both genders are given the same chances and encouragement to start a business. . .
Unfortunately, our dreams continue to be a Utopia: gender inequality in entrepreneurship is still a massive problem.
Unsurprisingly, discrepancies in investments are emphasized when entrepreneurs are just starting their business. Female entrepreneurs own 38% of the businesses in the United States; however, they only receive 2% of private equity financing. But we’re in the 21st century, why exactly is that so?
A study conducted for six years by the Harvard Business Review shows that the disparity between capital raised by female and male entrepreneurs results from the investors’ questions. The study shows that investors pay significant attention to the person behind the business, and gender stereotypes play a massive role in the capital raised.
The gender stereotype impacts the business world greatly: men tend to be seen as the CEOs of huge, successful companies (such as Lyft, Facebook, Amazon, etc) by investors; whereas, women are stereotyped as the owners of smaller businesses. A report on the Scientific American concluded that these stereotypes lead investors to ask male entrepreneurs promotion-focused questions, such as how they will “win” as a businessman, and ask female entrepreneurs “prevention-focused” questions such as what they will do not to “lose” as a businesswoman.
According to the same report that analyzed linguistic style matching, prevention-focused questions, such as “how predictable are your future cash flows?” that tend to be asked to females are more likely to get prevention-focused responses. In contrast, the promotion-focused questions, such as “what major profit milestones are you targeting for this year?” that investors ask male entrepreneurs are more likely to get promotion-focused answers which are more appealing and promising to an investor.
Brianna Lipovsky, the founder of the modern luxury perfume brand Maison d’Etto, and Nona Lim, the owner of Nona Lim foods, talked about how the gender disparity in raising capital affects female entrepreneurs.
Brianna Lipovsky stated that she believes that capital is harder to raise for women because of the masculine/feminine stereotypes. Nonetheless, the successful entrepreneur asserts that she believes society will significantly reward the “more feminine energy” that female entrepreneurs bring to the table.
On the other hand, Nona is not as hopeful. “I have heard of other female entrepreneurs who have given up because they ran out of cash,” Nonna said. “There are also cases where men run out of money. In general, access to capital is hard.”
Despite the unjust distribution of capital for female and male entrepreneurs, there still are things that you can do as a businesswoman to raise capital.
Millions of ideas are created every day. Only some become realities- most likely, those who know people who can help make it happen. Networking is extremely important for starting entrepreneurs, especially women. A report by Entrepreneur.com stated that a study by the website Alice showed that the few women who get funding for their businesses are those who have strong connections with promising startup networks.
2. Consider female investors
They have been there, they have seen it. Female entrepreneurs and investors are much more likely not to succumb to the gender bias in funding. The company SAHA Fund was launched by women looking to invest in women- investors as such might make a huge difference in your success in raising capital.
3. Capital funds investing in female entrepreneurs
We are finally being heard! Some venture capital funds realized how unfair gender bias in crowdfunding is and decided to take action. According to an article from the founder institute, some of the top venture capital funds which focus on women are Halogen Ventures, Urban innovation funds, Glasswing Ventures, Fika Ventures, Sogal Ventures, and 112Capital.
4. Reframe questions from investors
As the study conducted by Harvard Business Review stated, women are less likely to get funding because of the “prevention-based” questions they are asked. On the bright side, an article by Forbes noted that while being interviewed, female entrepreneurs should not focus on the “here and now”; and instead focus on their businesses’ future. Female entrepreneurs should respond to “prevention-based” with “promotion-based” answers. For example, if you are asked “How long will it take for you to break even?”, briefly answer the question while emphasizing your company’s profit goals and the milestones you want to achieve.
5. Be confident
The confidence gap still is a thing. A study by Cornell University shows that men tend to overestimate their abilities while women tend to underestimate theirs. Most people equate confidence incompetence and success; therefore, low confidence levels will make you come across as unprepared to investors. Wear the confidence you have on yourself and on your product when meeting with investors!
If you liked this article, check out our podcast episodes: Marjorie Gubelmann – Turn Your Passion Into Your Job and Meenal Lele – Stopping Allergies from Getting Started
Get new ideamix content delivered straight to your inbox.