Women founders face pitfalls in raising capital in male-dominated industries

According to a report by venture-capital firm Work-Bench, less than 2% of all US venture technology startups have at least one female founder. Data from the US Department of Labor also found that in 2019, women made up only 18.1% of software developers in the country.

Research by Dana Kanze, assistant professor of organizational behavior at the London Business School, suggests some of the reasons women founders may struggle in the early stages of trying to secure funding, and therefore the likelihood of getting their startup off the ground. may decrease. ,

Dr. Kanze’s work has been published in the Harvard Business Review and the Academy of Management Journal.

Dr. Kanz spoke to The Wall Street Journal about his research.

WSJ: What factors have you uncovered in your research that may have contributed to the issues experienced by female founders at the helm of enterprise software startups?

Dr. Kanze: Enterprise software is a male-dominated sector, where women are underrepresented in terms of overall employment. My co-authors and I have recently discovered that under-representation of women in the field affects them not only as employees but also as founders.

Last year, we published research in Science Advances showing that female founding CEOs are at a particular disadvantage when fundraising for enterprises that cater to these male-dominated (as opposed to female-dominated) industries. In our field and experimental studies, we found that female founding CEOs raise less funding at lower valuations for decreased equity in male-in contrast to female-dominated industries, while male founding CEOs correlate with favorable funding regardless of gender dominance. get results. industry they serve.

We learned that this is due to a misconception among investors that female (but not male) founding CEOs “lack the fit” with their enterprises when serving these “gender-incompatible” industries.

WSJ: What are some of the negative effects of women entrepreneurs failing to get their business off the ground?

Dr. Kanze: If female founders are hindered by their ability to raise funds and ultimately achieve a successful exit for their businesses and themselves, they may not be able to achieve comparable amounts of personal wealth and industry-relevant operating impact. Will be compared to their male counterparts. Disrupted by these methods, women are much less likely to become serial entrepreneurs and angel investors, as well as entrepreneurs in residence and decision makers in venture funds.

Therefore, the harmful downstream consequence is that we will see less volume of women-founded enterprises and women investors working in these industries.

WSJ: What can be done about it on the investor side?

Dr. Kanze: A silver lining in our research was that we found that accredited investors displayed a lower amount of bias against female founders based on a misconception of fit than non-accredited investors. It suggests the need to allocate resources in support of promoting greater financial literacy and awareness of decision-making biases among investors. Fortunately, venture funds and angel groups have become increasingly active in the past few years about arranging research-driven training seminars to educate their investors.

Although they are taking these initial important steps, real change will only happen if the funds commit to improving their best practices. This includes implementing a consistent process for data intake so that they are not filling in the blanks with gendered assumptions about the candidate’s industry expertise or otherwise.

But investors avoid the formality of the process, instead relying on individual interactions with each founder based on unique insights. One way forward is for them to adopt a “freedom within a framework” approach that enables both these objectives to be achieved.