When even due diligence can be biased | TechCrunch - 0 views
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recent events are the latest in a string of high profile conflicts between venture capital’s idealized version of itself as a meritocratic haven for free-thinkers of all stripes, and the more unfortunate reality of a business beset by the same problems of systemic privilege as any other that involves massive monied interests and a highly selective group of (mostly) hyper-educated, white, male elites as its gatekeepers.
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venture capital’s problems with women (and with people of color, and with sexual orientation) extend far beyond the obviously terrible behavior exposed in the excellent reporting done by The New York Times (which would have been impossible without the brave entrepreneurs who came forward to speak on the record about the sexual misconduct they had to confront).
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the study published earlier this week in the Harvard Business Review is so important. In it, the authors examined the ways that investors pose different questions to the men and women they’re vetting for potential investment dollars… and the ways that those questions and their responses impact financing.
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The study’s authors found that investors tended to ask men questions about the potential for gains and women about the potential for losses. Both men and women expressed the bias against women founders.
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investors adopted what’s called a promotion orientation when quizzing male entrepreneurs, which means they focused on hopes, achievements, advancement, and ideals. Conversely, when questioning female entrepreneurs they embraced a prevention orientation, which is concerned with safety, responsibility, security, and vigilance. We found that 67% of the questions posed to male entrepreneurs were promotion-oriented, while 66% of those posed to female entrepreneurs were prevention-oriented.
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Every prevention question posed to an entrepreneur meant $3.8 million less in funding for their companies FOR EACH QUESTION. According to the study, entrepreneurs who fielded mostly prevention questions raised $2.3 million in aggregate funds for their startups through 2017. That’s seven times less than the $16.8 million raised by entrepreneurs who were asked promotion questions.
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The research that formed the core of the study consisted of the authors observing initial due diligence between 140 investors (40 percent of whom were women) and 189 entrepreneurs at TechCrunch Disrupt New York.
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male-led startups raised five times more funding than companies led by women. The study and its findings go a long way to explain the enormous gender gap in venture capital funding in the U.S.
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Women startup founders raise roughly 2% of all venture funding, even though they own 38% of the businesses in the country, the study’s authors write.
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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?