Accounting & Finance

Why do female founders receive less capital even though they deliver better results?

  • 4 min Read
  • August 31, 2021

Author

Escalon

Table of Contents

Businesses founded by women deliver higher returns on investment — more than twice as much per dollar invested and stronger cumulative revenues at nearly 10% more over a five-year period — than those led by men, according to


BCG research
Nevertheless, they receive only a fraction of overall funding from investors. 

The COVID-19 crisis seems to be worsening this funding gap: The percentage of venture capital investment flowing to female founders dropped dramatically in 2020.

Crunchbase reports that only a minuscule 2.3% of venture capital investment went to female founders last year. Additionally, the total amount of funding flowing to female-founded companies ebbed by 27% compared to the previous year.

Dig deeper

Nassim Abdi, the co-founder of Indiana-based firm Storybolt, which offers equity and diversity training, had a hard time attracting investors. But this had more to do with her being a female founder rather than anything lacking in her business model, according to research from Dana Kanze.

Kanze, a professor of organizational behavior at London Business School, had undergone similar experiences as a serial entrepreneur, which prompted her to examine these gender distinctions among founders seeking investor funding.

By analyzing several pitch presentations from TechCrunch’s Disrupt Startup Battlefield, the world’s preeminent startup competition, Kanze found that women and men used similar degrees of promotion and prevention language in their actual pitches. But women founders weren’t given the same shot at funding as their male counterparts.

Kanze’s
2017 TED Talk
, “The Real Reason Female Entrepreneurs Get Less Funding,” further elaborates on how male entrepreneurs were asked promotion-coded questions during pitches while female entrepreneurs were asked prevention-coded questions. A staggering 67% of questions posed to male entrepreneurs focused on a founder’s vision for growing the company. These numbers were reversed for female founders:66% of questions posed to female founders were prevention focused.

In general, prevention questions ask how an entrepreneur will prevent everything from going south, and promotion questions focus on how successful the venture could be.

Additionally, a “similarity bias” works against women founders to further limit chances of shining in front of investors, said Kanze.

All venture capitalists, regardless of gender, displayed the same implicit gender biases manifested in the focus of their questions. Female VCs asked male entrepreneurs mostly promotion questions and then turned around and probed female entrepreneurs with mostly prevention questions just like the male VCs did.

Talk to us about how our back-office services let founders scale up.

Silver lining

Stepping up her research, Kanze analyzed the entrepreneurs’ responses to questions during pitch meetings and found that promotion-driven answers led to better funding outcomes.

Generally, a prevention question begets a preventive reply. And such responses further trigger subsequently biased questions from investors, and these limiting questions and answers collectively fuel a cycle of bias that perpetuates the gender disparity. The only way out is responding with promotion answers.

Framing a response in promotional terms can help female entrepreneurs garner higher funding for their startups. Kanze’s research backed this up with data suggesting that plucky entrepreneurs who redirected the otherwise prevention-focused dialogue into the favorable domain of gains were able to raise 14 times more funding.

Suggestions

The most promising startups, regardless of whether they’re led by men or women, should be given a fighting chance to grow and thrive. And there is something that every party involved in the process can contribute toward ending this gender funding bias.

Female entrepreneurs should first recognize the question they’re being asked during pitches. Second, they should try to emit more confidence and frame their responses in promotional language for every prevention question asked by investors. 

Meanwhile, to correct funding outcomes, investors should change the way they approach female founders — everything from their questions to outreach. For instance, they can consider setting a minimum percentage of funds to be allocated for women-founded companies, conducting diversity training and reaching out to local, national and global organizations for female founders.

Additionally, female investors should conduct more even-handed funding sessions. Flashing the same light on every startup’s potential for gains and losses will help them enable all deserving firms, regardless of whether they are male- or female-founded. 

Finally, more women must step up as investors and claim seats at the table. Continuing to avoid the male-dominated venture capital world will only make women miss out on the power, wealth and influence that they could have investing in venture.

Want more?

Escalon provides entrepreneurs and established businesses with accounting, strategic finance, CFO services, taxes and the support they need to grow. Talk to an expert today.

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

Accounting & Finance

October 15 Tax Deadline: What to Double Check Before You File

If your business or personal tax return was extended back in April, October 15 is the final deadline to submit....

Accounting & Finance

Key Financial Deadlines Every SMB Should Know for Q3 and Q4 

For small and mid-sized businesses, the second half of the year often comes with increased operational demands, from budgeting and...

Small Businesses

From Bookkeeping to Strategic Finance: Preparing Your Family Business for Growth

Is Your Family Business Ready for Its Next Chapter? As a family business leader, you've built something remarkable. Through years...

Accounting & Finance

Subscription Revenue in 2025: Fatigue, Churn, and the Imperative to Diversify 

For much of the last decade subscription models symbolized modern growth, predictable revenue, sticky customer relationships, and rising valuations. But...

Accounting & Finance

Closing the Books in Q4: Common Mistakes That Delay Reporting 

Closing the books at year-end is one of the most important financial events for any growing business. It sets the...

Leadership & Growth

Building a Scalable Tech Stack: How to Choose the Right Tools for Growth 

In today’s business landscape, technology is more than a convenience—it’s a strategic asset that can supercharge growth. But as you...

People Management & HR

The Role of HR Analytics in Strategic Decision-Making 

In the era of big data, human resources (HR) analytics has emerged as a powerful tool that can transform how...

Accounting & Finance

Understanding Customer Lifetime Value and Its Impact on Strategy 

In the world of business, not all customers are created equal. Some make one small purchase and disappear, while others...

Accounting & Finance

Tax Strategies for Succession Planning in Family-Owned Businesses 

Succession planning in a family-owned business is a delicate dance that involves not only leadership and emotional considerations, but also...