Conversational bias: female founders can get more funding

Female founders can win more investment.
Helene Panzarino
Investment Readiness Consultant
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In my role as an investment readiness consultant, I frequently see record breaking statistics regarding levels of VC investing either on my social media feed or in newsletters. It’s an optimistic state of play that backs up my own experience as a professional who is almost spoiled for choice when it comes to introducing potential investors to my clients.

There are, however, two other VC statistics that are less upbeat and more conspicuous by their absence in this sea of financial abundance, and those are the lack of VC investment going into female-led businesses -10% of global VC money goes to female-led businesses - as well as the lack of female VC investors.

According to Pitchbook, in 2016 VCs invested $58.2bn (£44.9bn) in companies with all-male founders, while women received $1.4bn (£1.1bn). The differences relate to both deal size and the number of deals, but the disparity is staggering, to say the least.

A growing number of women are starting businesses – ambitious businesses with IP, that can take advantage of the very generous SEIS and EIS tax incentive schemes in the UK. Businesses that have the potential to actually make sales, export, and employ others and have the ability to generate higher returns (women deliver 35% higher ROI for investors). But for some reason seem not to be given an equal opportunity to access the larger amounts of external funding and network required to scale these businesses.

Why is this the case? Is it a simple question of needing more women investing in other women? According to the publication TechCrunch, just about 7% of VC partners are women, so by default the overwhelming majority are men. Is the ‘old boy’ network investing in ‘new boy businesses’?

The cry goes out for more female investors, but I have to ask myself; is just having more female investors the solution or is there more women can do to ensure they walk away from the negotiating table with a larger amount and on a more regular basis?

I get asked this question repeatedly and more so over the past five years or so. As someone who comes from a financial background and is used to rooms that are predominantly male, I try to put myself in the shoes of my clients to look behind the figures as we search for answers.

They tended to ask men questions about the potential for gains and women about the potential for losses.

On any given evening in London, there are groups meeting to discuss whether women are less confident in this situation? Naturally more conservative and ask for smaller amounts? Are too risk averse? Unable to wrap their heads around all the ins and outs of term sheets? Unaware of where to find VCs? Less passionate than men when it comes to business???

I personally feel there may be some truth to the naturally conservative argument, but founders like Debbie Wosskow, who successfully grew and exited Love Swap Home, and is now heading up female-led investment fund AllBright have no problem with big picture thinking, confidence or passion. And of course, she is not alone.

So is there something more going on here? I think there is, and one of the most interesting recent studies I’ve seen on VC investing in general and then specifically with regard to women is the HBR study done by two women from both my alma maters, University of Pennsylvania and Columbia University in the US, focusing on the language of the VC ‘dance’ in relation to the amount of VC funding raised by women.

What they observed and what they concluded can be applied to both men and women, but it blew me away!

The team observed Q&A interactions between 140 prominent venture capitalists (40% of them female) and 189 entrepreneurs (12% female) that took place at the pitch competition at TechCrunch Disrupt New York. They went on to track all funding rounds for the startups that launched at the competition. The startups were on level pegging in terms of quality and capital needs, and yet their total amounts of funding raised over time differed significantly: male-led startups in their sample raised five times more funding than female-led ones.

The team went on to carry out a linguistic analysis of the video transcripts of the Q&A sessions, and discovered that VCs posed different types of questions to male and female entrepreneurs: they tended to ask men questions about the potential for gains and women about the potential for losses. They found no difference in the bias in either male or female VCs, shooting a hole in the foot of the argument that more female VCs is the answer to our problems.

By responding in kind to promotion questions, male entrepreneurs reinforced their association with the positive areas of ‘gains’.

“According to the psychological theory of regulatory focus, investors adopted what’s called a promotion orientation when quizzing male entrepreneurs, which means they focused on hopes, achievements, advancement, and ideals. Conversely, when questioning female entrepreneurs they embraced a prevention orientation, which is concerned with safety, responsibility, security, and vigilance. We found that 67% of the questions posed to male entrepreneurs were promotion-oriented, while 66% of those posed to female entrepreneurs were prevention-oriented.”

The team observed that entrepreneurs who fielded mostly prevention questions went on to raise an average of $2.3m (£1.8m) in aggregate funds for their startups through 2017 — about seven times less than the $16.8m (£12.9m) raised on average by entrepreneurs who were asked mostly promotion questions.

They also observed that “the majority of entrepreneurs (85%) responded to questions in a manner that matched the question’s orientation: a promotion question received a promotion answer, and a prevention question, a prevention answer”.

By responding in kind to promotion questions, male entrepreneurs reinforced their association with the positive areas of ‘gains’, while female entrepreneurs who responded in kind to prevention questions unwittingly penalised their startups by keeping the conversation in the negative realm of ‘losses’. Not what a VC wants to hear –‘I might not lose you money vs. I will make you money!’

Fortunately, there’s a very simple and actionable call to arms as a result of their findings. Change the music for the dance! Entrepreneurs can potentially positively influence the outcome of their VC ‘dance’ and raise more funding if they change the way they respond to prevention questions.

“TechCrunch Disrupt entrepreneurs who were asked mostly prevention questions but gave mostly promotion responses went on to raise an average of $7.9m in total funding. Conversely, those who responded to mostly prevention questions with mostly prevention answers went on to raise an average of only $563,000.” So, for example, it’s more about emphasising the size of the overall pie vs. your slice or sliver of it.

It may not be a question of confidence or ignorance, risk aversion or a natural bend towards conservatism, and it may not be enough that the old boys in VC will soon be matched in numbers by some new girls. Instead, take heart in the fact that while we wait for the female investor community to grow in numbers there is at least one thing we can all do to try to redress the gender funding imbalance and raise the capital required to start and scale our ambitious and worthy businesses, and like Dorothy in the Wizard of Oz, we’ve had the power all along; we just didn’t realise how to click our heels and make it work for us.

About Helene Panzarino

About Helene Panzarino

Originally a Commercial Banker with one of the largest global banks, Helene is a highly experienced Investment Readiness Consultant, Programme Director and Exited Entrepreneur, who successfully created and launched the Inaugural Programme of Education and Events for the UK FinTech trade body, Innovate Finance, as well as an Alternative Finance Investment Readiness Programme aimed at connecting SMEs to the right finance provider, and a FinTech and Financial Services consultancy programme to educate and connect large FS providers with early stage FinTech businesses.   

Since January 2017 she’s been the Lead Fellow on a world-first FinTech Pathway in a Masters in Tech Entrepreneurship Degree for UCL, a visiting Fellow on the Imperial College Business School MSc in Finance, and co-creator and lead delivery partner on the Imperial College FinTech Executive Education Programme.

Helene has assisted thousands of high-growth SMEs in their fund-raising efforts, in her business advisory work, for a Big 5 accountancy practice, and for a number of EU programmes, and has recently been a key member of the team successfully raising $5m for one of her own interests. 

She has an extensive network and active relationships with FinTechs, accelerators, traditional and alternative debt/equity finance providers, political, regulatory, and board level industry figures.

Named a Top 10 Influencer in SME Funding in 2016, Helene is the sole author of Business Funding for Dummies (Wiley) 2016, and contributor to The Entrepreneurs’ Network (TEN) and Scale Up Summit  on ‘Female Founders Raising Post-Seed Finance’, Boost Roundtable on ‘Man vs Machine’ for SME finance, Centre for Entrepreneurship Roundtable on ‘Offenders to Entrepreneurship’ and BEIS New Business Support Feasibility Study, and an FSB Parliamentary Task Force on Women and Finance.

She is a regular judge, speaker and moderator for SWIFT Innotribe, Rainmaking Innovation Summit, FinTech Week London, The Alt Fi Finance Awards, Nextmoney BBVA Awards and the Great British Entrepreneur Awards. 

She is a member of Femtech Global FinTech Network, Wharton FinTech (Penn alum), New Finance, a Founder Member of the Centre for Entrepreneurs, and on the Steering Group of the TLA  FinTech Working Group. She is a mentor for Start-up Bootcamp, Mass Challenge and the Ascension Fund.


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