The real reason female entrepreneurs get less funding

Women own 39 percent of all businesses in the US, but female entrepreneurs get only two percent of venture funding. What's causing this gap? Dana Kanze shares research suggesting that it might be the types of questions start-up founders get asked when they're invited to pitch. Whether you're starting a new business or just having a conversation, learn how to spot the kinds of questions you're being asked -- and how to respond more effectively.

This is me at five years old,

shortly before jumping
into this beautifully still pool of water.

I soon find out the hard way
that this pool is completely empty

because the ice-cold water
is near freezing

and literally takes my breath away.

Even though I already know how to swim,

I can't get up to the water's surface,
no matter how hard I try.

That's the last thing I remember
trying to do before blacking out.

Turns out, the lifeguard on duty
had been chatting with two girls

when I jumped in,

and I was soon underwater,

so he couldn't actually
see or hear me struggle.

I was eventually saved
by a girl walking near the pool

who happened to look down and see me.

The next thing I know,
I'm getting mouth-to-mouth

and being rushed to the hospital
to determine the extent of my brain loss.

If I had been flailing
at the water's surface,

the lifeguard would have noticed
and come to save me.

I share this near-death experience
because it illustrates

how dangerous things are
when they're just beneath the surface.

Today, I study implicit
gender bias in start-ups,

which I consider to be
far more insidious than mere overt bias

for this very same reason.

When we see or hear an investor

behaving inappropriately
towards an entrepreneur,

we're aware of the problem

and at least have a chance
to do something about it.

But what if there are subtle differences

in the interactions
between investors and entrepreneurs

that can affect their outcomes,

differences that we're not conscious of,

that we can't directly see or hear?

Before studying start-ups
at Columbia Business School,

I spent five years running
and raising money for my own start-up.

I remember constantly racing around
to meet with prospective investors

while trying to manage my actual business.

At one point I joked
that I had reluctantly pitched

each and every family member,
friend, colleague, angel investor

and VC this side of the Mississippi.

Well, in the process of speaking
to all these investors,

I noticed something
interesting was happening.

I was getting asked a very different
set of questions than my male cofounder.

I got asked just about everything
that could go wrong with the venture

to induce investor losses,

while my male cofounder was asked
about our venture's home run potential

to maximize investor gains,

essentially everything
that could go right with the venture.

He got asked how many new customers
we were going to bring on,

while I got asked how we were going
to hang on to the ones we already had.

Well, as the CEO of the company,
I found this to be rather odd.

In fact, I felt like
I was taking crazy pills.

But I eventually
rationalized it by thinking,

maybe this has to do
with how I'm presenting myself,

or it's something
simply unique to my start-up.

Well, years later I made the difficult
decision to leave my start-up

so I could pursue a lifelong dream
of getting my PhD.

It was at Columbia that I learned
about a social psychological theory

originated by Professor Tory Higgins
called "regulatory focus,"

which differentiates between
two distinct motivational orientations

of promotion and prevention.

A promotion focus is concerned with gains

and emphasizes hopes, accomplishments
and advancement needs,

while a prevention focus
is concerned with losses

and emphasizes safety,
responsibility and security needs.

Since the best-case scenario
for a prevention focus

is to simply maintain the status quo,

this has us treading water
just to stay afloat,

while a promotion focus instead
has us swimming in the right direction.

It's just a matter
of how far we can advance.

Well, I had my very own eureka moment
when it dawned on me

that this concept of promotion

sounded a lot like the questions
posed to my male cofounder,

while prevention resembled
those questions asked of me.

As an entrepreneurship scholar,

I started digging into the research
on start-up financing

and discovered there's an enormous gap

between the amount of funds
that male and female founders raise.

Although women found
38 percent of US companies,

they only get two percent
of the venture funding.

I got to thinking:

what if this funding gap is not due
to any fundamental difference

in the businesses
started by men and women?

What if women get less funding than men

due to a simple difference
in the questions that they get asked?

After all, when it comes
to venture funding,

entrepreneurs need to convince investors
of their start-up's home run potential.

It's not enough to merely demonstrate

you're not going to lose
your investors' money.

So it makes sense that women
would be getting less funding than men

if they're engaging

in prevention as opposed to
promotion-oriented dialogues.

Well, I got the chance
to test this hypothesis

on companies with similar quality
and funding needs across all years

at the funding competition
known as TechCrunch Disrupt

Startup Battlefield has run
in New York City

since its inception in 2010.

TechCrunch is widely regarded as
the ideal place for start-ups to launch,

with participants including start-ups
that have since become household names,

like Dropbox, Fitbit and Mint,

presenting to some of the world's
most prominent VCs.

Well, despite the comparability
of companies in my sample,

male-led start-ups went on
to raise five times as much funding

as the female-led ones.

This made me especially curious to see
what's driving this gender disparity.

Well, it took a while,

but I got my hands on all the videos of
both the pitches and the Q and A sessions

from TechCrunch,
and I had them transcribed.

I first analyzed the transcripts

by loading a dictionary
of regulatory-focused terms

into the Linguistic Inquiry
and Word Count software called LIWC.

This LIWC software
generated the frequencies

of promotion and prevention words
in the transcribed text.

As a second method,

I had each of the questions
and answers manually coded

by the Tory Higgins
Research Lab at Columbia.

Regardless of the topic at hand,

an intention can be framed
in promotion or prevention.

Let's take that topic of customers
I mentioned briefly earlier.

A promotion-coded question sounds like,

"How many new customers
do you plan to acquire this year?"

while a prevention-coded one sounds like,

"How do you plan to retain
your existing customers?"

During the same time,

I also gathered background information

on the start-ups and entrepreneurs
that can affect their funding outcomes,

like the start-up's age,
quality and funding needs

and the entrepreneur's past experience,

so I could use these data points
as controls in my analysis.

Well, the very first thing that I found

is that there's no difference in the way
entrepreneurs present their companies.

In other words, both male
and female entrepreneurs

use similar degrees
of promotion and prevention language

in their actual pitches.

So having ruled out this difference
on the entrepreneur's side,

I then moved on to the investor's side,

analyzing the six minutes of Q&A sessions

that entrepreneurs engaged in
with the VCs after pitching.

When examining the nearly 2,000 questions

and corresponding answers
in these exchanges,

both of my methods
showed significant support

for the fact that male entrepreneurs
get asked promotion questions

and female entrepreneurs
get asked prevention questions.

In fact, a whopping 67 percent
of the questions posed

to male entrepreneurs
were promotion-focused,

while 66 percent of those posed to female
entrepreneurs were prevention-focused.

What's especially interesting

is that I expected female VCs

to behave similarly to male VCs.

Given its prevalence in the popular media
and the venture-funding literature,

I expected the birds-of-a-feather
theory of homophily to hold here,

meaning that male VCs
would favor male entrepreneurs

with promotion questions

and female VCs would do the same
for female entrepreneurs.

But instead, all VCs displayed
the same implicit gender bias

manifested in the regulatory focus
of the questions they posed

to male versus female candidates.

So female VCs asked
male entrepreneurs promotion questions

and then turned around and asked
female entrepreneurs prevention questions

just like the male VCs did.

So given the fact
that both male and female VCs

are displaying this implicit gender bias,

what effect, if any, does this have
on start-up funding outcomes?

My research shows
it has a significant effect.

The regulatory focus of investor questions

not only predicted
how well the start-ups would perform

at the TechCrunch Disrupt competitions

but also how much funding the start-ups
went on to raise in the open market.

Those start-ups who were asked
predominantly promotion questions

went on to raise
seven times as much funding

as those asked prevention questions.

But I didn't stop there.

I then moved on to analyze entrepreneurs'
responses to those questions,

and I found that entrepreneurs
are apt to respond in kind

to the questions they get,

meaning a promotion question
begets a promotion response

and a prevention question
begets a prevention response.

Now, this might make
intuitive sense to all of us here,

but it has some unfortunate consequences
in this context of venture funding.

So what ends up happening

is that a male entrepreneur
gets asked a promotion question,

granting him the luxury
to reinforce his association

with the favorable domain
of gains by responding in kind,

while a female entrepreneur
gets asked a prevention question

and inadvertently
aggravates her association

with the unfavorable domain
of losses by doing so.

These responses then trigger venture
capitalists' subsequent biased questions,

and the questions and answers
collectively fuel a cycle of bias

that merely perpetuates
the gender disparity.

Pretty depressing stuff, right?

Well, fortunately, there's
a silver lining to my findings.

Those plucky entrepreneurs
who managed to switch focus

by responding to prevention questions
with promotion answers

went on to raise 14 times more funding

than those who responded
to prevention questions

with prevention answers.

So what this means
is that if you're asked a question

about defending
your start-up's market share,

you'd be better served
to frame your response

around the size and growth potential
of the overall pie

as opposed to how you merely plan
to protect your sliver of that pie.

So if I get asked this question,

I would say,

"We're playing in such a large
and fast-growing market

that's bound to attract new entrants.

We plan to take
increasing share in this market

by leveraging our start-up's
unique assets."

I've thus subtly redirected this dialogue
into the favorable domain of gains.

Now, these results are quite compelling
among start-ups that launched at TechCrunch

but field data can merely tell us
that there's a correlational relationship

between regulatory focus and funding.

So I sought to see whether
this difference in regulatory focus

can actually cause funding outcomes

by running a controlled experiment

on both angel investors
and ordinary people.

Simulating the TechCrunch
Disrupt environment,

I had participants listen
to four six-minute audio files

of 10 question-and-answer exchanges

that were manipulated
for promotion and prevention language,

and then asked them
to allocate a sum of funding

to each venture as they saw fit.

Well, my experimental results
reinforced my findings from the field.

Those scenarios where entrepreneurs
were asked promotion questions

received twice the funding allocations

of those where entrepreneurs
were asked prevention questions.

What's especially promising

is the fact that those scenarios
where entrepreneurs switched

as opposed to matched focus
when they received prevention questions

received significantly more funding
from both sets of participants.

So to my female entrepreneurs out there,

here are a couple
simple things you could do.

The first is to recognize
the question you're being asked.

Are you getting a prevention question?

If this is the case, answer
the question at hand by all means,

but merely frame
your response in promotion

in an effort to garner higher amounts
of funding for your start-ups.

The unfortunate reality, though,

is that both men and women
evaluating start-ups

display the same implicit
gender bias in their questioning,

inadvertently favoring
male entrepreneurs over female ones.

So to my investors out there,

I would offer that you have
an opportunity here

to approach Q&A sessions
more even-handedly,

not just so that you
could do the right thing,

but so that you can improve
the quality of your decision making.

By flashing the same light
on every start-up's potential

for gains and losses,

you enable all deserving
start-ups to shine

and you maximize returns in the process.

Today, I get to be that girl

walking by the pool,

sounding the alarm

that something is going on
beneath the surface.

Together, we have the power
to break this cycle

of implicit gender bias
in start-up funding.

Let's give the most promising start-ups,

regardless of whether
they're led by men or women,

a fighting chance to grow and thrive.

Thank you.

(Applause)