May 19, 2017

Study shows gender bias in venture capital

Male and female entrepreneurs are not treated equally by venture capitalists, according to researchers who were invited to silently observe and transcribe hours of startup company pitches and subsequent investor conversations.

The language used to describe male and female entrepreneurs was radically different. And these differences have very real consequences for those seeking funding.

The study: Three researchers from LuleΓ₯ University watched and transcribed a group of seven Swedish governmental venture capitalists, as they met with 125 startup founders. Their goal was to better understand VC decision-making, while the investors hoped that the findings could help them improve their own process. But the results were different than either side expected.

Language examples: Unproven, young male founders were referred to as "promising," whereas unproven, young female founders were referred to as "inexperienced." Or "Cautious and sensible" vs. "too cautious."

Funding results: Female founders on average received 25% of their ask, compared to a 52% mark for the men. A majority of women (who comprised 21% of the sample) were denied funding altogether, while only 38% of men were turned down.

American translation: Yes, this is Sweden rather than Silicon Valley. But:

  1. Women own around 1/3 of all businesses in Sweden, so its hardly a more chauvinistic market in this regard.
  2. Government VCs actually are required to take "European equality criteria and multiple gender requirements" into account when making their decisions, which highlights just how deep these unconscious biases run.
  3. Two of the seven VCs were women, which is a higher percentage than would be seen in most U.S. venture firms.

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