Many financial barriers stand in the way of women who want to launch their own businesses in the UK. Male entrepreneurs in the UK are 86% more likely to raise venture capital funding than their female equivalents.
Recent research may have discovered why there is such a stark funding gap: Venture Capital firms ask different questions to male and female founders. These questions in turn beget different answers from women and men, which leads to far fewer female start-ups being funded.
The questions that VCs ask entrepreneurs when considering whether to invest in their businesses can be divided into one of two tones: either promotion oriented or prevention oriented. Promotion oriented questions are primarily concerned with growth and potential while prevention oriented queries are more concerned with risk avoidance and stability. As such, promotion oriented questions offer CEOs more opportunities to draw attention to potential economic success, while prevention oriented questions anchor CEOs to talking about their potential pitfalls. It goes without saying that any investor would be more compelled to invest in a venture that demonstrates potential for growth, not merely avoidance of failure.
Some examples of promotion vs. prevention oriented questions include:
- Regarding customers…
- PROMOTION language focusses on all of the potential ways to acquire future customers, for example: “How do you want to acquire customers?”
- PEVENTION language rather focusses on how many customers the company in question has already acquired, which is likely to be a much smaller and less impressive number than the customers they could acquire in the future. An example question would therefore be: “How many daily and monthly active users do you have?”
- Regarding income…
- PROMOTION language focusses on sales and the potential for future income, such as: “How will you make profit?”
- PREVENTION language takes into consideration potential costs and expenses, forcing the person answering to give much more modest figures. Prevention questions may sound like, “How long will it take you to break even?”
- Regarding market size…
- PROMOTION language allows the CEO to wax lyrical about the potential of the market they are entering, thanks to questions like “How quickly is your market growing?”
- PREVENTION language asks the CEO to consider potential pitfalls of the market they want to enter, such as “Are you sure that other companies can’t come steal your market share?”
CEOs who are asked more promotion oriented questions are clearly given an incomparably greater chance to outline their start-up’s potential. Indeed, research led by Dr. Dana Kanze in 2017 indicated that male entrepreneurs – who were asked 67% promotion questions by potential investors – raised up to 5 times more capital than their female equivalents in similar industries. This is stark considering that those equivalent female CEOs were asked 66% prevention oriented questions. Clearly, the language that frames investment questions has great impact on how much funding start-ups receive.
Interestingly, female venture capitalists have been proven to be equally as likely as their male counterparts to ask male and female entrepreneurs different questions based on their gender. It is clear that more awareness needs to be raised of implicit gender bias in the venture capital world, among both women and men.Â
Â
The research cited in this article was carried out by a team of PhDs led by Dr. Dana Kanze at TechCrunch Disrupt in 2017. The data was collected across 140 venture capitalists and 189 entrepreneurs and was published in the Harvard Business Review. You can see their research here: https://hbr.org/2017/06/male-and-female-entrepreneurs-get-asked-different-questions-by-vcs-and-it-affects-how-much-funding-they-getÂ
Â
This article is part of our themed week introducing our amazing Top Tier writers and their work.
Â
Â