How Funders Can Help Close the Gender Divide While Growing Their Bottom Line
Advice for venture capitalists and financial providers
Women take more time and deliver more pitches than men to secure the Series A funding that propels their businesses from start-up to scale-up.
This may be due to a preference among women to accentuate the sustainability of their business in a way that doesn’t resonate with venture capitalists (VCs). Although research demonstrates that sustainable businesses generate greater long-term portfolio returns, VCs tend toward multiple long-shot investments of which one or two may pay off. However, by not investing in companies with more diverse leadership approaches Morgan Stanley estimates that venture capitalists could be missing out on as much as $4 trillion in value.
We believe the following six recommendations will help close the funding gap between genders.
Recommendations
1. Run your numbers
Understanding the demographics of entrepreneurs who have pitched to you, as well as the outcomes of the pitches (e.g., financing, investments, valuations), can help eliminate bias and enable you to prioritize investment decisions.
2. Compare notes
Examine the language you use to evaluate men versus women. Previous research has found that the same pitch given by men and women resulted in better outcomes for men. For example, men received notes of “young and promising” and “arrogant but driven” while women were characterized as “young but inexperienced” and “enthusiastic but weak.”
3. Increase the diversity within your firm at all levels
Engage women investors and decision-makers in the funding process to bring diverse perspectives to the pitch process and reduce the risk of gender bias and favoritism.
4. Consider a variety of business models
Consider and welcome realistic projections in pitches, rather than exclusively seeking the “unicorn.” Others have recommended adjusting the definition of “expansion risk” to include companies founded and led by women and multicultural entrepreneurs. An openness to this definition can help expand your networking efforts among diverse entrepreneurs and help you better understand the opportunities they present.
5. Hold yourselves accountable
Develop a diversity, equity, and inclusion strategy for your organization and make it public. Share goals and data about your internal and portfolio diversity.
6. Seek out women entrepreneurs
Based on women’s preference for sustainable business models, the venture capital route may not be seen as attractive. Market and sell the idea of equity financing to a wide audience, and include success stories from women and those who had atypical career paths. Showing that there is success in the VC world with more sustainable business models, while simultaneously reducing discrimination within it, could make the prospect of venture capital financing more attractive to women.
Want to Help?
Signal49 Research is an independent non-profit that relies on sponsors to help it conduct its research and drive impact.If you are interested in being a sponsor of this research, contact Leah Ringwald [email protected].