We’ve covered the issue of bias before and how it can impact investment decisions in a way that potentially causes investors millions in missed opportunities.
Bias can also impact funding decisions.
In a recent study published by Dana Kanze at Columbia, most questions posed to male entrepreneurs were oriented towards advancement or were promotion-focused, while most questions posed to female entrepreneurs were oriented towards risk-aversion or were prevention-focused.
Potentially then, could due-diligence questions to entrepreneurs could also be as biased?
Read MoreWhy This Matters
The implications of another study of those who are promotion-focused versus prevention-focused found that every prevention question posed to an entrepreneur meant $3.8 million less in funding for their companies.
“The problem in investment isn’t just the overt physical and psychological abuse, but covert biases that block women’s ability to succeed from the start,” says Jonathan Shiber, in his column on Techcrunch.
Long Way to Go
While women startup founders raise roughly 2% of all venture funding, they own nearly 38% of the businesses in the country, the study’s authors write.
As Karin Klein, a founding partner at Bloomberg Beta, wrote in a Medium post from last year:
Study after study shows this also makes business sense: we have ample evidence that inclusive teams make for superior performance. Of the over 20,000 venture backed companies from 1997 to 2011 that Dow Jones analyzed, successful startups had double the median proportion of female executives as the unsuccessful ones.
As startups continue transform our society, it’s important to take into consideration the potential gender inclusion can have on innovation. This holds true for other diversity as well.**** Having a narrow selection committee could mean missing out.
We’re simply asking that we VCs begin to collect the data and that LPs ask us for it — a sort of transparency pledge. Women contribute to 25 percent of the GDP growth. Women are starting more companies. Women outperform men in both brokerage performance as well as hedge fund performance. Why not see how this plays out in venture capital? With so many new funds being formed, the opportunity for LPs to change the game is now.
Klein’s call to action, better data among other things, is a good start. Data can shed a light on how to address some of the industry’s more egregious problems of financing.
Read Some More
“When Even Due Diligence Can be Biased,” Techcrunch, July 2017.
“We Ask Men to Win & Women Not to Lose: Closing the Gender Gap in Startup Funding,” Academy of Management, April 2017.
“Do You Play to Win or Not Lose,” Harvard Business Review, March 2013.
“The Missing Piece of the VC Gender Inclusion Puzzle,” Medium, June 2016.
