What investors ask female entrepreneurs

The vast majority of venture funding goes to men. Why?


More women than ever are starting businesses. In the UK, around 33% of new ventures are owned by women. However only 1% of venture funding goes to female entrepreneurs and the situation in the US is comparable. Research by Dr Dana Kanze, London Business School Assistant Professor of Organisational Behaviour, sheds new light on what’s going on in the VC community. What she and her co-authors discovered is that women are treated differently than men seeking capital. Starting with the interviews posed to male and female candidates at the pitching stage, where investor questions can take an unintentional turn. However, Dr Kanze and her colleagues have also found are ways that both investors and entrepreneurs can help level the playing field.

What were you and your colleagues looking for when you dug into the gender gap in venture funding?

When you account for potential differences in the quality, growth prospects, and need for capital among startups launched by men and women as we have, you’re left to explore the investor side of the funding equation: are investor behaviours in some way creating an uneven playing field when it comes to the allocation of venture capital?

To confront this possibility, we looked into a critical portion of the funding process—the types of questions investors ask male and female entrepreneurs. In our investigation, we leveraged the psychological theory of regulatory focus, which posits two distinct types of goal orientation: promotion and prevention. For our study, we explored whether investors were posing promotion questions to men – questions that focused on gain-oriented elements like hopes, achievements, and advancement. And, conversely, whether they were directing prevention questions that focused on loss-oriented elements like safety, security, and responsibility when interacting with female entrepreneurs.

So you hypothesised that men and women were being asked materially different questions by investors. How did you put this theory to the test?

The TechCrunch Disrupt funding competition served as a strategic setting for our work because it affords consistent access to tech ventures of comparable quality and need for capital. We gathered all the available competition footage for seven years’ worth of TechCrunch pitches and Q&A interactions between 2010 and 2016 at the competition’s New York location, transcribing videos for a total of 189 companies. As controls in our analyses, we separately compiled data on the entrepreneurs and startups that might affect the questions they get asked and the funding outcomes they experience.

We analysed the transcripts in two different ways. The first was to upload a pre-existing dictionary of promotion and prevention terms into a linguistic software programme that generates the frequencies of terms in a body of text. The promotion dictionary includes words like accomplish, aspire, earn, expand, grow, ideal and so on. The prevention dictionary includes words like accuracy, afraid, defend, fail, fear, and threat.

To verify the results, we also had all of the nearly 2,000 questions and corresponding answers manually coded by a team of researchers at a lab specialising in promotion and prevention. Although the covered topics did not differ, the specific questions varied along the dimension of gain versus loss framing.

Can you give an example of promotion and prevention type questions?

If you take the topic of customers, for instance, a promotion-framed question sounds something like: “How do you plan to acquire (or gain) new customers?” A prevention question would be more along the lines of: “How do you plan to retain (or not lose) your existing customers?”

Despite confirming that the language of the pitches made by men and women did not differ according to promotion and prevention, the questions posed to them did:  67% of the questions put to men were promotion questions, while 66% of the questions put to women were prevention questions.

So is it just that men get asked more positive questions and women more negative ones?

No, it’s not. We conducted a valence analysis and found that the questions don’t simply differ according to positivity and negativity by gender. Male entrepreneurs are also likely to get asked non-gain questions, and female entrepreneurs are likely to get asked non-loss questions as well. For instance, men get asked negative questions too, but it’s along the lines of: “I don’t believe you’re going to grow at a 25% rate. I think it will look more like 20%. Can you justify your growth forecast?” So they’re already playing in this growth territory of gains when dealing with forms of negativity.

You found evidence of gender bias on the part of the investors. Was this consistent among male and female investors?

Yes. In this male-dominated setting we found that male and female investors behaved similarly with regards to the questions they posed to male vs. female entrepreneurs.

So do investors perceive risk differently when interacting with female versus male entrepreneurs?

Risk is certainly a key component of prevention (as opposed to promotion) orientation. Interestingly, our findings were recently replicated and extended by a team of researchers in Europe. In doing so, they found that there was, in fact, a difference in the way that investors processed information when female – as opposed to male – entrepreneurs talked about risk. Also consistent with our work, a large-scale cross-continental study has now uncovered differences in the risk orientation of investor questions directed towards male vs. female founders. It’s exciting to see how similar findings are being observed in different settings. This research is being advanced in truly unique ways.

Going back to your original work, how did gender bias play out in terms of funding allocation to the startups in your study?

Those entrepreneurs that are asked predominantly promotion questions go on to raise approximately seven times more funding than those asked mainly prevention questions. But that’s not all. We also found that for every additional prevention-oriented question put to the entrepreneur, the startup goes on to raise almost $4 million less in capital investment.

So there is a significant impact on the growth trajectory of these companies that desperately need funding at this critical stage in their life cycles.

That’s staggering. You found material evidence of bias among venture capitalists and angels and the concrete impact this has on entrepreneurs.

Yes, but it’s not just these accredited investors.

We ran a series of experiments on nearly 200 accredited investors and over 100 non-accredited ones. We wanted to see if promotion versus prevention interactions could directly affect funding decisions made by different types of prospective investors involved in capital raises today.

Here we simulated the TechCrunch Q&A setting by creating four six-minute audio files of exchanges between investors and entrepreneurs based on the actual transcripts. We standardised these files for quality and stage of the startup to control for any factors other than the gain versus loss orientation of information mentioned. Then we manipulated the dialogues to contain different combinations of promotion versus prevention questions and answers.

What we found was interesting. Both sets of investors allocated significantly more funding to entrepreneurs who had been asked promotion, as opposed to prevention, questions. Angels invested twice as much, and laypeople 1.6 times as much.

We were especially encouraged by the impact when entrepreneurs switched the orientation of their answers. In other words, if an entrepreneur was asked a prevention-style question but answered with a promotion-type answer, the investor awarded significantly more funding than if the entrepreneur had responded with a prevention-oriented answer. This experimental result was consistent with what we found in the TechCrunch Disrupt study where those entrepreneurs who switched focus went on to raise 14 times as much funding as those who responded by maintaining focus (which the vast majority were unfortunately apt to do).

So you’re saying that even if an investor puts a ‘prevention’ question to an entrepreneur, if that entrepreneur gives a ‘promotion’ answer, they can mitigate the effect?

Our field and experimental results indicate that entrepreneurs do benefit from this subtle reframing. Founders can learn to recognise the orientation of the questions they’re being asked. They have the opportunity to answer the spirit of those questions but frame their responses in terms of promotion to garner more funding and better outcomes for their startups.

So, say an investor says to you: “How long will it take you to break even?” I would include verbiage to the effect of: “We’re managing the business for aggressive top-line growth with a good deal of sales momentum so far. Here’s what our sales forecast looks like. Our goal is to expand margins as we grow our top line over the forecasted period.”

It’s about redirecting the dialogue into the more favourable domain of gains, without evading or disregarding the question at hand. And that stands whether you are male or female. In our study, women were not penalised when they reframed their responses. In fact, they were considered to be more confident in the growth potential of their startups.

What about investors? What message do you have for them?

I believe the onus is squarely on the investors rather than on the entrepreneurs. As our study results show, women are not doing anything wrong in terms of the way they are pitching their businesses to induce these unfavourable types of questions. Investors are the ones who may not be maximising returns: By asking a disproportionate number of promotion questions of men, they may be overexposing themselves to downside risk in male candidates. And by asking a disproportionate number of prevention questions of women, they may be underexposing themselves to upside potential in female candidates.

So investors can become aware of the orientation of the questions they’re asking and make a conscious effort to frame them consistently, regardless of candidate gender.

How else have you extended your research in this area?

Consistent with academic and practitioner findings related to product markets over the past year, I recently found that female entrepreneurs are penalised in their efforts to raise funding for ventures that produce male- as opposed to female-oriented offerings (while men raise similar amounts of funding regardless of whether it is for a male- or female-oriented venture). And I have separate ongoing work with colleagues that indicates non-verbal gestures in pitch settings can also help to explain differences in funding outcomes for founders. 

I’m similarly excited to work with my colleague here at London Business School, Dr Olenka Kacperczyk, on various projects related to entrepreneurial outcomes. One of her recent collaborations revealed a significant tie between growth orientation and funding. As growth orientation is a key component of promotion focus, which we found to be a predictor of funding, there are clear commonalities in our research to explore.

Dana Kanze is Assistant Professor of Organisational Behaviour at London Business School.