Dana Kanze: The real reason female entrepreneurs get less funding

Recorded atOctober 06, 2017
Duration (min:sec)14:35
Video TypeTEDx Talk
Words per minute168.82 medium
Readability (FK)34.16 very difficult
SpeakerDana Kanze

Official TED page for this talk


Women own 39 percent of all businesses in the US, but female entrepreneurs get only two percent of venture funding. What's causing this gap? Dana Kanze shares research suggesting that it might be the types of questions start-up founders get asked when they're invited to pitch. Whether you're starting a new business or just having a conversation, learn how to spot the kinds of questions you're being asked -- and how to respond more effectively.

Text Highlight (experimental)
100:17 This is me at five years old,
200:19 shortly before jumping into this beautifully still pool of water.
300:24 I soon find out the hard way that this pool is completely empty
400:29 because the ice-cold water is near freezing
500:31 and literally takes my breath away.
600:35 Even though I already know how to swim,
700:37 I can't get up to the water's surface, no matter how hard I try.
800:42 That's the last thing I remember trying to do before blacking out.
900:46 Turns out, the lifeguard on duty had been chatting with two girls
1000:49 when I jumped in,
1100:51 and I was soon underwater,
1200:53 so he couldn't actually see or hear me struggle.
1300:57 I was eventually saved by a girl walking near the pool
1401:00 who happened to look down and see me.
1501:04 The next thing I know, I'm getting mouth-to-mouth
1601:06 and being rushed to the hospital to determine the extent of my brain loss.
1701:11 If I had been flailing at the water's surface,
1801:15 the lifeguard would have noticed and come to save me.
1901:19 I share this near-death experience because it illustrates
2001:22 how dangerous things are when they're just beneath the surface.
2101:27 Today, I study implicit gender bias in start-ups,
2201:31 which I consider to be far more insidious than mere overt bias
2301:36 for this very same reason.
2401:38 When we see or hear an investor
2501:40 behaving inappropriately towards an entrepreneur,
2601:43 we're aware of the problem
2701:45 and at least have a chance to do something about it.
2801:49 But what if there are subtle differences
2901:52 in the interactions between investors and entrepreneurs
3001:56 that can affect their outcomes,
3101:58 differences that we're not conscious of,
3202:02 that we can't directly see or hear?
3302:06 Before studying start-ups at Columbia Business School,
3402:09 I spent five years running and raising money for my own start-up.
3502:13 I remember constantly racing around to meet with prospective investors
3602:18 while trying to manage my actual business.
3702:20 At one point I joked that I had reluctantly pitched
3802:23 each and every family member, friend, colleague, angel investor
3902:27 and VC this side of the Mississippi.
4002:30 Well, in the process of speaking to all these investors,
4102:33 I noticed something interesting was happening.
4202:35 I was getting asked a very different set of questions than my male cofounder.
4302:39 I got asked just about everything that could go wrong with the venture
4402:43 to induce investor losses,
4502:45 while my male cofounder was asked about our venture's home run potential
4602:49 to maximize investor gains,
4702:51 essentially everything that could go right with the venture.
4802:54 He got asked how many new customers we were going to bring on,
4902:57 while I got asked how we were going to hang on to the ones we already had.
5003:01 Well, as the CEO of the company, I found this to be rather odd.
5103:05 In fact, I felt like I was taking crazy pills.
5203:09 But I eventually rationalized it by thinking,
5303:11 maybe this has to do with how I'm presenting myself,
5403:13 or it's something simply unique to my start-up.
5503:17 Well, years later I made the difficult decision to leave my start-up
5603:21 so I could pursue a lifelong dream of getting my PhD.
5703:25 It was at Columbia that I learned about a social psychological theory
5803:29 originated by Professor Tory Higgins called "regulatory focus,"
5903:34 which differentiates between two distinct motivational orientations
6003:37 of promotion and prevention.
6103:40 A promotion focus is concerned with gains
6203:42 and emphasizes hopes, accomplishments and advancement needs,
6303:47 while a prevention focus is concerned with losses
6403:49 and emphasizes safety, responsibility and security needs.
6503:54 Since the best-case scenario for a prevention focus
6603:57 is to simply maintain the status quo,
6704:00 this has us treading water just to stay afloat,
6804:03 while a promotion focus instead has us swimming in the right direction.
6904:08 It's just a matter of how far we can advance.
7004:13 Well, I had my very own eureka moment when it dawned on me
7104:16 that this concept of promotion
7204:18 sounded a lot like the questions posed to my male cofounder,
7304:21 while prevention resembled those questions asked of me.
7404:26 As an entrepreneurship scholar,
7504:27 I started digging into the research on start-up financing
7604:31 and discovered there's an enormous gap
7704:33 between the amount of funds that male and female founders raise.
7804:38 Although women found 38 percent of US companies,
7904:43 they only get two percent of the venture funding.
8004:47 I got to thinking:
8104:49 what if this funding gap is not due to any fundamental difference
8204:53 in the businesses started by men and women?
8304:56 What if women get less funding than men
8404:59 due to a simple difference in the questions that they get asked?
8505:04 After all, when it comes to venture funding,
8605:06 entrepreneurs need to convince investors of their start-up's home run potential.
8705:11 It's not enough to merely demonstrate
8805:13 you're not going to lose your investors' money.
8905:15 So it makes sense that women would be getting less funding than men
9005:19 if they're engaging
9105:20 in prevention as opposed to promotion-oriented dialogues.
9205:24 Well, I got the chance to test this hypothesis
9305:27 on companies with similar quality and funding needs across all years
9405:32 at the funding competition known as TechCrunch Disrupt
9505:35 Startup Battlefield has run in New York City
9605:38 since its inception in 2010.
9705:42 TechCrunch is widely regarded as the ideal place for start-ups to launch,
9805:46 with participants including start-ups that have since become household names,
9905:50 like Dropbox, Fitbit and Mint,
10005:52 presenting to some of the world's most prominent VCs.
10105:56 Well, despite the comparability of companies in my sample,
10206:00 male-led start-ups went on to raise five times as much funding
10306:03 as the female-led ones.
10406:06 This made me especially curious to see what's driving this gender disparity.
10506:11 Well, it took a while,
10606:12 but I got my hands on all the videos of both the pitches and the Q and A sessions
10706:17 from TechCrunch, and I had them transcribed.
10806:20 I first analyzed the transcripts
10906:22 by loading a dictionary of regulatory-focused terms
11006:26 into the Linguistic Inquiry and Word Count software called LIWC.
11106:30 This LIWC software generated the frequencies
11206:32 of promotion and prevention words in the transcribed text.
11306:36 As a second method,
11406:38 I had each of the questions and answers manually coded
11506:42 by the Tory Higgins Research Lab at Columbia.
11606:46 Regardless of the topic at hand,
11706:48 an intention can be framed in promotion or prevention.
11806:52 Let's take that topic of customers I mentioned briefly earlier.
11906:57 A promotion-coded question sounds like,
12006:59 "How many new customers do you plan to acquire this year?"
12107:02 while a prevention-coded one sounds like,
12207:05 "How do you plan to retain your existing customers?"
12307:09 During the same time,
12407:10 I also gathered background information
12507:13 on the start-ups and entrepreneurs that can affect their funding outcomes,
12607:17 like the start-up's age, quality and funding needs
12707:20 and the entrepreneur's past experience,
12807:22 so I could use these data points as controls in my analysis.
12907:26 Well, the very first thing that I found
13007:29 is that there's no difference in the way entrepreneurs present their companies.
13107:33 In other words, both male and female entrepreneurs
13207:36 use similar degrees of promotion and prevention language
13307:40 in their actual pitches.
13407:42 So having ruled out this difference on the entrepreneur's side,
13507:45 I then moved on to the investor's side,
13607:47 analyzing the six minutes of Q&A sessions
13707:50 that entrepreneurs engaged in with the VCs after pitching.
13807:54 When examining the nearly 2,000 questions
13907:57 and corresponding answers in these exchanges,
14008:01 both of my methods showed significant support
14108:04 for the fact that male entrepreneurs get asked promotion questions
14208:08 and female entrepreneurs get asked prevention questions.
14308:12 In fact, a whopping 67 percent of the questions posed
14408:17 to male entrepreneurs were promotion-focused,
14508:19 while 66 percent of those posed to female entrepreneurs were prevention-focused.
14608:25 What's especially interesting
14708:27 is that I expected female VCs
14808:30 to behave similarly to male VCs.
14908:35 Given its prevalence in the popular media and the venture-funding literature,
15008:39 I expected the birds-of-a-feather theory of homophily to hold here,
15108:44 meaning that male VCs would favor male entrepreneurs
15208:47 with promotion questions
15308:49 and female VCs would do the same for female entrepreneurs.
15408:53 But instead, all VCs displayed the same implicit gender bias
15508:59 manifested in the regulatory focus of the questions they posed
15609:02 to male versus female candidates.
15709:05 So female VCs asked male entrepreneurs promotion questions
15809:09 and then turned around and asked female entrepreneurs prevention questions
15909:13 just like the male VCs did.
16009:16 So given the fact that both male and female VCs
16109:19 are displaying this implicit gender bias,
16209:22 what effect, if any, does this have on start-up funding outcomes?
16309:27 My research shows it has a significant effect.
16409:31 The regulatory focus of investor questions
16509:33 not only predicted how well the start-ups would perform
16609:37 at the TechCrunch Disrupt competitions
16709:40 but also how much funding the start-ups went on to raise in the open market.
16809:45 Those start-ups who were asked predominantly promotion questions
16909:48 went on to raise seven times as much funding
17009:52 as those asked prevention questions.
17109:55 But I didn't stop there.
17209:57 I then moved on to analyze entrepreneurs' responses to those questions,
17310:01 and I found that entrepreneurs are apt to respond in kind
17410:05 to the questions they get,
17510:07 meaning a promotion question begets a promotion response
17610:10 and a prevention question begets a prevention response.
17710:13 Now, this might make intuitive sense to all of us here,
17810:17 but it has some unfortunate consequences in this context of venture funding.
17910:22 So what ends up happening
18010:24 is that a male entrepreneur gets asked a promotion question,
18110:27 granting him the luxury to reinforce his association
18210:31 with the favorable domain of gains by responding in kind,
18310:35 while a female entrepreneur gets asked a prevention question
18410:38 and inadvertently aggravates her association
18510:41 with the unfavorable domain of losses by doing so.
18610:45 These responses then trigger venture capitalists' subsequent biased questions,
18710:50 and the questions and answers collectively fuel a cycle of bias
18810:54 that merely perpetuates the gender disparity.
18910:57 Pretty depressing stuff, right?
19010:59 Well, fortunately, there's a silver lining to my findings.
19111:03 Those plucky entrepreneurs who managed to switch focus
19211:07 by responding to prevention questions with promotion answers
19311:11 went on to raise 14 times more funding
19411:15 than those who responded to prevention questions
19511:17 with prevention answers.
19611:19 So what this means is that if you're asked a question
19711:22 about defending your start-up's market share,
19811:25 you'd be better served to frame your response
19911:27 around the size and growth potential of the overall pie
20011:31 as opposed to how you merely plan to protect your sliver of that pie.
20111:36 So if I get asked this question,
20211:37 I would say,
20311:39 "We're playing in such a large and fast-growing market
20411:42 that's bound to attract new entrants.
20511:44 We plan to take increasing share in this market
20611:47 by leveraging our start-up's unique assets."
20711:50 I've thus subtly redirected this dialogue into the favorable domain of gains.
20811:56 Now, these results are quite compelling among start-ups that launched at TechCrunch
20912:00 but field data can merely tell us that there's a correlational relationship
21012:04 between regulatory focus and funding.
21112:07 So I sought to see whether this difference in regulatory focus
21212:10 can actually cause funding outcomes
21312:13 by running a controlled experiment
21412:15 on both angel investors and ordinary people.
21512:18 Simulating the TechCrunch Disrupt environment,
21612:21 I had participants listen to four six-minute audio files
21712:25 of 10 question-and-answer exchanges
21812:28 that were manipulated for promotion and prevention language,
21912:31 and then asked them to allocate a sum of funding
22012:34 to each venture as they saw fit.
22112:36 Well, my experimental results reinforced my findings from the field.
22212:41 Those scenarios where entrepreneurs were asked promotion questions
22312:45 received twice the funding allocations
22412:47 of those where entrepreneurs were asked prevention questions.
22512:51 What's especially promising
22612:53 is the fact that those scenarios where entrepreneurs switched
22712:56 as opposed to matched focus when they received prevention questions
22813:00 received significantly more funding from both sets of participants.
22913:06 So to my female entrepreneurs out there,
23013:08 here are a couple simple things you could do.
23113:11 The first is to recognize the question you're being asked.
23213:15 Are you getting a prevention question?
23313:17 If this is the case, answer the question at hand by all means,
23413:21 but merely frame your response in promotion
23513:24 in an effort to garner higher amounts of funding for your start-ups.
23613:29 The unfortunate reality, though,
23713:32 is that both men and women evaluating start-ups
23813:35 display the same implicit gender bias in their questioning,
23913:38 inadvertently favoring male entrepreneurs over female ones.
24013:43 So to my investors out there,
24113:45 I would offer that you have an opportunity here
24213:49 to approach Q&A sessions more even-handedly,
24313:52 not just so that you could do the right thing,
24413:55 but so that you can improve the quality of your decision making.
24514:00 By flashing the same light on every start-up's potential
24614:04 for gains and losses,
24714:06 you enable all deserving start-ups to shine
24814:09 and you maximize returns in the process.
24914:12 Today, I get to be that girl
25014:15 walking by the pool,
25114:17 sounding the alarm
25214:19 that something is going on beneath the surface.
25314:23 Together, we have the power to break this cycle
25414:26 of implicit gender bias in start-up funding.
25514:30 Let's give the most promising start-ups,
25614:33 regardless of whether they're led by men or women,
25714:36 a fighting chance to grow and thrive.
25814:40 Thank you.
25914:41 (Applause)