Equal Funding, Equal Opportunities: Overcoming Unconscious Bias for Women-Led Startups
Unconscious bias refers to the attitudes or stereotypes that affect our understanding, actions, and decisions in an unconscious manner. These biases are not necessarily intentional, but they can have a significant impact on the way we perceive and interact with those around us. In the world of venture capital, unconscious bias can have a particularly detrimental effect on the funding and success of women-led startups.
Recent studies have shown that women-led startups receive significantly less funding than their male counterparts, with only 2.2% of venture capital going to female-founded companies in 2021. This disparity in funding can be attributed to unconscious bias, as studies have shown that investors are more likely to invest in companies founded by people who look like them and have similar backgrounds.
One example of unconscious bias is the way in which male and female entrepreneurs are asked contrasting questions during pitch meetings. A study by Harvard Business Review found that investors adopted different orientations when questioning male and female founders, with a promotion orientation for males and a prevention orientation for females. Male entrepreneurs were more likely to be asked about the potential for their company to become a market leader, while women entrepreneurs were more likely to be asked about the potential risks and challenges facing their company. This difference in the way questions are asked can have a significant impact on the amount of funding that a startup receives, as investors are naturally likely to invest in a company they perceive as having a higher potential for success.
The table below highlights the distinctions between promotion and prevention questions.
To overcome the challenges of this prejudice and increase the success of women-led startups, there are several steps that can be taken.
- Increase diversity in venture capital: One of the best ways to neutralise unconscious bias is to increase diversity across the industry. This means not only increasing the number of women in venture capital but also increasing the diversity of backgrounds and experiences of investors.
- Use objective criteria for evaluating startups: Investors should use impartial criteria for assessing startups, rather than relying on subjective judgments. This could include metrics such as market size, revenue growth and customer acquisition. This ensures that investors are evaluating the startup based on its merits, rather than being influenced by unconscious biases.
- Offer mentorship and support: To amplify the success of female founders, investors should offer mentorship and support to women in entrepreneurship. This can include providing resources, networking opportunities, and access to key industry contacts.
- Invest in a diverse range of startups: Investors should invest in various types of startups, including those founded by women and other underrepresented groups. This approach not only helps to level the playing field, but also opens up more opportunities for investors to discover and capitalise on innovative ideas and untapped markets.
Unconscious bias can have a significant impact on the success of women-led companies. However, by taking steps to increase diversity, using objective criteria for evaluating startups, offering mentorship and support, and investing in a diverse range of startups, we can work towards neutralising bias and promoting positive results for women founders. It is important to note that it is not just the venture capital industry but also the startup ecosystem at large, where the unconscious bias exists, thus making it crucial for everyone to work together to break these barriers. By supporting a more diverse array of founders, investors can foster a more inclusive and equitable startup ecosystem, ultimately leading to greater success for everyone involved.