How Gender stereotypes influence investors’ decisions

“Women-Led Startups Received Just 2.3% of VC Funding in 2020”

“Global VC Funding To Female Founders Dropped Dramatically”

We all have seen these headlines.

Funding to women-led startups by venture capital firms, globally, has never crossed the mark of 3% of overall funding.

The comparatively low number of women-led startups, low representation of women as decision-makers in the investor firms and notably, sex-based biases are some of the widely accepted causes for this state of funding.

An article published in 2019, by the name “Don’t pitch like a girl!”, in the journal SAGE, provides some interesting and different insights into what factors influence the investors’ decisions.

The article says that sex-based biases are too simplistic an explanation to explain the lack of venture capital obtained by women. The study done by researchers associated with this article suggests that investors are not biased against women per se, but rather, that both men and women face biases when they display feminine-stereotyped behaviours.

What are these stereotypes?

Based on gender role expectations, there are differences in what is considered acceptable behaviours for men and women. In western societies, while men are expected to display masculine behaviours associated with assertiveness and dominance, women are expected to display feminine behaviours associated with warmth and emotional expressiveness. 

This is one of the reasons why, professions associated with behaviours of power, leadership,

and authority tends to be stereotyped as masculine, whereas professions stereotyped as feminine more often involve nurturing and caregiving behaviours.

Role of these stereotypes in entrepreneurship

Entrepreneurs are generally described as bold, aggressive and risk-takers – behaviours that are typically associated with masculinity. Thus, entrepreneurs who display masculine stereotyped behaviours may be assumed to possess more entrepreneurial competencies. 

As investors prefer entrepreneurs who can clearly demonstrate their business competency, by this logic, entrepreneurs who display masculine-stereotyped behaviours may have an advantage in competing for venture capital over those who display more feminine-stereotyped behaviours. 

Basis of the study

The researchers analyzed videos of men and women entrepreneurs pitching to venture capital investors where the investors decided immediately after the pitch if they were interested in learning more about the venture for potential funding.

Business pitches are not the only parameter used by the investors in the vetting process for funding, but they are widely accepted as the most critical component, as during the pitch, investors evaluate the venture’s market potential, as well as the entrepreneur’s capabilities, to lead and grow the venture.

Findings of the research study

• The study indicates that women entrepreneurs are just as likely as men to receive investor interest in their ventures and do not face barriers to potential funding, at least during the pitch stage.
• It suggests that it is not masculinity that provides an advantage in venture capital pitches, but instead, femininity leads to a disadvantage.
• Both men and women, who display feminine stereotyped behaviours get penalized by the investors while finalizing their decisions.
• The research findings also suggest that the discrimination against women entrepreneurs might not be overt.

Conclusion

Even though the data used in the study may not be the true representation of the global status of the funding to women-led startups, the research adds a new dimension to looking into investors’ decisions, as it points out that sex-based biases may not be the only component responsible for the state of funding to women-led startups globally.

The research though provides great insights into investors’ decisions during the pitches, has also raised some prominent questions, like:

• If there are no barriers for women entrepreneurs to potential funding during the pitch stage, do the investors’ funding interests change as the decision-making process moves from an initial pitch to the investors’ due diligence practices?
• If showing feminine behaviours leads to a disadvantage during the pitching process, is it also possible that feminine-stereotyped behaviours could offer advantages for certain entrepreneurship activities, for example, building customer and supplier relationships, or motivating employees?

This is worth noting how changing the lens of looking at an issue can provide valuable insights which would have not been available otherwise.

Disclaimer: The information contained in this article is based on research published in a research journal  SAGE and does not necessarily represent the views of the author.

Credit: Please refer to the full study here: https://journals.sagepub.com/doi/full/10.1177/1042258717728028