Editor’s note: This commentary is by Janice St. Onge, who is president of the Flexible Capital Fund, a mission investment fund providing risk capital to growing businesses in Vermont’s food system, forestry and clean technology sectors.
[F]emale entrepreneurs receive less than 5 percent of all venture capital funding despite owning 38 percent of the businesses in the country.
According to the National Venture Capital Association, 89 percent of venture capital investors are white men. These men have a bias toward familiar faces. This bias is not always a conscious one, but it’s there. And, it is part of the reason why less than 1 percent of venture capital goes to blacks or Latinos, and less than 5 percent goes to women.
Despite the fact that the number of female venture capitalists has increased from 3 percent of all venture capitalists in 2014 to a “whopping” 7 percent today, the equity funding gap for female entrepreneurs has only widened. In a recent Harvard Business Review article, the authors described a study they conducted where they observed venture capitalists posed different types of questions to male and female entrepreneurs: They tended to ask men questions about the potential for gains (promotion questions) and women about the potential for losses (prevention questions). They found evidence of this bias with both male and female venture capitalists. This difference in questioning appears to have substantial funding consequences for startups. Despite being comparable in terms of quality and capital needs, the total amounts of funding raised over time differed significantly: male-led startups in their sample raised five times more funding than female-led ones. It’s easy to see how prevention questions being asked to females can lead to less funding.
Another interesting factoid … 97 percent of all venture-funded businesses have male CEOs, but according to a Dow Jones study which analyzed 15 years of venture backed companies and how women in leadership roles affected startups, a company’s odds for success increase as the percentage of females holding leadership positions increases.
In the words of Yuvan Atsmon in a recent blog post titled, “Why Confronting Our Unconscious Biases Is Both a Moral and Business Imperative,” Yuvan said, “Diversity and inclusion are a business imperative, and racial, ethnic and gender diversity leads to better financial outcomes, customer experience and employee retention.”
This is exactly why two newly formed groups in Vermont and New England, the Vermont Women’s Investors Network (VT WIN) and the Northern New England Women’s Investor’s Network (NNE WIN) is looking to diversify the faces and stories of investors who are supporting our entrepreneurial ecosystems.
In October, 38 women and four men from Vermont and New England gathered to participate in a workshop, put on by VT WIN in collaboration NNE WIN, that addressed unconscious bias in investing and the workplace.
Guest speakers, Jessica Nordhaus, director of strategy and partnerships, and Lindsay Lathrop-Ryan, career and business coach, shared their experiences in working with Change the Story’s Business Peer Exchange, a collective of companies working together to ensure women thrive in their workplaces. They helped participants make the connection to their own unconscious biases as investors and how those biases can impact how women entrepreneurs are perceived and how their access to capital is influenced by those perceptions.
The predominant investor category in New England is white and male. If we all, regardless of gender, color or sexual orientation, have an unconscious bias to invest in what we are familiar with or what we look like, then we need to change the face of who is investing.
I’m not here to bash white men – I’m married to one. I’m saying we have some work to do today in our own shop, ladies, to ensure our cultural biases as investors aren’t hindering our female and diverse entrepreneurs’ ability to raise capital. There is overwhelming evidence that diversity in entrepreneurial teams lead to more successful businesses, and research revealing that companies with gender-diverse boards of directors and management teams produce a superior return on equity. Think of the great opportunities we all can discover if we acknowledge first that we have unconscious biases, and then seek to consciously overcome those biases in our investing. But it doesn’t stop there. We can help “change the story” in our work with the entrepreneurs to help them build diverse teams that have a greater chance of success.
As the founder of Pipeline Angels, a women-focused angel network, Natalia Oberti Noguera puts it in a recent Conscious Company article, “I wanted to put the issue of pattern recognition on its head and say, ‘Well, if we invest in what’s familiar, if we invest in what looks like us, let’s get more of us on the investing side, because we’re probably going to be more open about investing in more of us on the entrepreneurship side.’”
