It's no secret that there's a serious lack of women in venture capital. Study after study has shown that women make up only a small portion of decision-making investing partners at venture capital firms, which many believe directly contributes to statistics showing female entrepreneurs receive less venture capital than their male counterparts. Now a new study published in the Harvard Business Review further drives home the point that we need more women driving the decision-making at venture capital firms. In a linguistic analysis of Swedish venture capitalists' discussions regarding funding applicants, researchers found venture capitalists routinely employed language steeped in gender stereotypes.
In an experiment conducted between 2009 and 2010 in Sweden, three researchers analyzed 36-hours of "closed-room, face-to-face discussions" between seven government venture capitalists regarding final funding decisions for 125 venture applications. Of the 125 applications for funding being discussed, 26 were submitted by female entrepreneurs. Of the seven government venture capitalists involved in the discussions, only two were women.
"Aside from a few exceptions, the financiers rhetorically produce stereotypical images of women as having qualities opposite to those considered important to being an entrepreneur, with [venture capitalists] questioning their credibility, trustworthiness, experience, and knowledge," the researchers wrote in a summary of their study published in the Harvard Business Review. "Conversely, when assessing male entrepreneurs, financiers leaned on stereotypical beliefs about men that reinforced their entrepreneurial potential. Male entrepreneurs were commonly described as being assertive, innovative, competent, experienced, knowledgeable, and having established networks."
For example, while female entrepreneur applicants were described as "young, but inexperienced," their male counterparts were reportedly characterized as "young, but promising." Researchers concluded that while male entrepreneurs were more often described with language that reinforced their entrepreneurial potential, the women were described in ways that appeared to diminish their potential. "Unsurprisingly, these stereotypes seem to have played a role in who got funding and who didn’t," the researchers wrote.
According to data collected by the researchers, female entrepreneurs were both less likely to have their applications approved and more likely to receive a smaller percentage of the funding they asked for compared to their male counterparts. Nearly 53 percent of female entrepreneurs had their venture applications denied compared to 38 percent of men. Those women who were awarded funding reportedly received, on average, 25 percent of what they'd applied for, while male entrepreneurs received, on average, 52 percent.
While this study was focused on venture capitalists in Sweden, there's a good chance similar gender stereotypes are being dropped in conversations between U.S. venture capitalists; research at home shows a glaring gender disparity in who's granted venture capital money. In the United States, 36 percent of all businesses are owned by women, according to an analysis of a 2012 survey by the U.S. Census Bureau. But while the number of women becoming entrepreneurs may be increasing, the gender gap in venture capital funding appears to be widening, not shrinking.
According to an analysis of data by Fortune, only 359 companies founded entirely by female entrepreneurs received venture capital funding in 2016. Compare that to the 1,067 companies founded by both men and women, and 5,839 companies founded entirely by men. Fortune also found that female entrepreneurs received significantly less funding than their male counterparts — in 2016, $1.46 billion in venture capital funds went to women, compared to the $58.2 billion that men received.
Part of the problem could be the lack of women working as venture capitalists as pattern recognition and unconscious biases are unfortunate but real aspects of how venture capitalists decide who gets funded. A 2016 study by Tech Crunch, found women made up just 7 percent of the top 100 venture firms' investing partners. And perhaps an easy solution to this can be gleaned from a 2014 study from Babson College’s Diana Project that found, unsurprisingly, that female entrepreneurs were more likely to be invested in by venture capitalist firms with female partners. According to the Babson's Diana Project, 58 percent of venture capital firms with female partners invested in companies with female CEOs between 2011 and 2013 compared to the 15 percent of venture capitalist firms with all-male partners who invested.
If more women were involved in discussions regarding venture funding applicants, it's more likely that gender stereotypes will be — ideally — tossed out the door, clearing the way for more women entrepreneurs to benefit from venture capital funds.