Can you talk about the significance of the gender gap in venture funding?
Female-founded firms now represent nearly 40 percent of privately-held companies, but only two percent of venture capital financing is allocated to female founders. What these disproportionate statistics say to me is that — although various initiatives are underway to promote women in technology and women in entrepreneurship — capital constraints continue to handicap women from growing their startups into large, well-known companies as opposed to smaller “family” and “lifestyle” businesses.
What motivated you to study this phenomenon?
Before starting my PhD, my co-founder and I raised three million in funding for our NYC-based startup. During my meetings with prospective investors, I noticed a difference in the types of questions I was asked versus those my male co-founder was asked. For example, I was asked to address anything that could potentially go wrong with the venture, while my male co-founder was asked to address the home run potential of our venture.
During my first year at Columbia, I learned about the social psychological concept of regulatory focus and noticed that these distinctions correspond to prevention focus (concerned with avoiding losses and approaching non-losses) versus promotion focus (concerned with approaching gains and avoiding non-gains). I wondered if this difference in the types of questions asked of male versus female entrepreneurs could help to explain their divergent funding outcomes.
What are the paper’s key findings?
We conducted a field study on Q&A interactions for 189 startups that presented at TechCrunch Disrupt New York City from 2010 through 2016. Our findings revealed that investors asked male entrepreneurs promotion-focused questions, while they asked female entrepreneurs prevention-focused questions. We showed that those entrepreneurs who received predominantly promotion-focused questions raised significantly more funds than those who received prevention-focused questions. As entrepreneurs were apt to respond with an answer that matched the regulatory focus of the questions asked, female founders inadvertently positioned their startups at a disadvantage when answering investor questions.
What, if any, findings were unexpected?
The fact that both male and female VCs display the same behavior, posing promotion-focused questions to male entrepreneurs and prevention-focused questions to female entrepreneurs. This finding implies that the funding disparity cannot be corrected by merely ensuring there are more female venture capitalists evaluating investment opportunities. In other words, our study contradicts the “industry representation” contention that more female VCs will clear a path for more successful female entrepreneurs.
Is there a silver lining to your findings?
Yes, we saw evidence of a silver lining in the data, so we paired the study with an additional experiment on 194 angel investors and 106 potential seed investors to confirm the benefits of a novel intervention. Armed with the knowledge that regulatory focus impacts funding outcomes, entrepreneurs can choose to respond to prevention questions with a promotion rather than prevention focus to raise higher amounts of funding for their startups. For example, if a female entrepreneur is asked a question about defending market share in a competitive market, she can respond by referencing the startup’s unique ability to gain advantage in such an attractive market based on overall market size and growth. The next phase of our research involves conducting a field experiment where we randomly assign entrepreneurs to training seminars on Q&A regulatory focus and observe the impact of these interventions on their funding outcomes.
This research is part of a forthcoming paper in the Academy of Management Journal entitled We Ask Men to Win & Women Not to Lose: Closing the Gender Gap in Startup Funding. Co-authors include Professor Laura Huang (Wharton School), Mark A. Conley (Columbia University) and Professor E. Tory Higgins (Columbia Business School).