Women Raising Capital
Actionable strategies to stay a step ahead of bias
As we celebrate International Women’s Day and the fact that progress is being made in working toward gender equity, the evidence abounds that there is much work to be done. I founded a business in the impact investing space because I believe in the power of entrepreneurship to contribute solutions for the biggest challenges we face worldwide. At the center of this belief is a coinciding view that we need diverse representation of leadership and contribution across gender, race, sexual orientation, ability, and more to unleash the innovation and ingenuity required to solve these problems.
The conversation about gender equity and representation in entrepreneurship and investment has advanced in recent years with actionable tools and frameworks being shared under the umbrella of gender lens investing. ESG and impact measurement take gender and broader representation into account. These are steps forward, but the reality is that in venture capital, “funding for women actually dipped from 2.2% in 2020 to 2.0% in 2021” (Forbes).
According to research conducted by the GIIN (Global Impact Investing Network) there are two key challenges driving this inequity: unconscious gender bias throughout the investment process and the marginalization of women-centered products and services.
Deep, systemic change is needed in the venture capital and impact investing industries to address overt and implicit bias and improve diverse representation on both sides of the table. But what about women raising capital today? We all exist within the world of bias and inequity, so how can we leverage the research on how bias manifests in the investment process to stay a step ahead? I’ve developed three actionable strategies women founders can use to mitigate bias.
NETWORKS
Research conducted by Columbia Business School showed that women receive fewer referrals from their professional networks even for those with professional networks equal to those of the men compared. In the context of seeking capital, this effects access to fund managers and investor networks. It is also noted that the difference is eliminated when it is someone a woman knows directly, rather than a third-party referral. To translate this into an applied strategy, women founders can generate more direct contacts.
Generating direct contacts requires active and organized networking. Pay attention to events and news in your sector and take the opportunity to meet funders prior to launching your capital raise. I always say that while you want to be completely ready to pitch before you land an investor meeting, it’s never too early to make a friend. If you attend a talk by a panel of investors stay after to introduce yourself and ask a question, be sure to stay on top of follow up via email or on LinkedIn and if your new contact invests in the sector, stage, and geography of your business add them to your running list of targets as you plan your raise.
My tips for networking events are to:
be bold in representing yourself,
be authentic about what motivates you,
be generous with your own referrals when you have the opportunity to help others.
If you experience nervousness or anxiety about networking, take note that everyone at a professional event experiences an awkward lull from time to time as the rhythm of conversations ebbs and flows. Embrace the awkward moments as a shared experience that is the price of meeting new friends.
NAVIGATION
At the stage in the process where you are actively pitching, research has established that implicit bias effects the way that investors ask questions. A recent study shows that investors tend to ask men about potential for gains and women about potential for losses (HBR). The questions can be organized into categories of promotion orientation versus prevention orientation. Essentially the questions asked of male entrepreneurs provide the opportunity to focus on achievement and hopes while the questions asked of women are concerned with safety, security, and vigilance.
This framing has a significant impact on the way the conversation unfolds. In a subtle way, a male entrepreneur may perceive that the question is encouraging, a vote of confidence, while a woman entrepreneur might perceive prevention questions to indicate hesitation and doubt effecting not just the direction of the conversation but the tone.
Sharing this information with women entrepreneurs tends to bring up frustration. I’ve heard the comment, “That’s so unfair!” when I stop to check in on how a group is receiving this research. Part of getting a step ahead of implicit bias requires us to face the painful ways that people and systems work to disadvantage certain groups, and this bias can even play out when the investor is a woman herself.
To mitigate this issue, I recommend putting a positive spin on the answers that you give. Go in knowing that you are likely to receive questions from a skeptical perspective and plan on considering any question as interest in the opportunity rather than doubt, use questions of any kind as a chance to speak to your achievements and the hopes you have for the project. To go even further on planning for a positive spin, go into a pitch meeting with a few key stories that you want to tell and use follow up questions to lead into those stories. If politicians and reporters can do this, so can we. It is important to listen carefully and address what is asked in a question, but there’s nothing wrong with segueing, for example, a question about risk into a highlight of the strength of your position in the market.
NEGOTIATION
The role of negotiation in the pay gender gap has been widely documented and discussed. Women are less likely to initiate negotiating and that effects salaries and earning potential over a lifetime. In the scenario of women entrepreneurs raising capital, the same disinclination to negotiate exists with similar repercussions.
In additional to preparing financial projections for your business over time, it’s important to execute investment analysis including a valuation for your business, a breakeven point, and a sense of growth projections and anticipated future cashflows. In order to negotiate your deal, go in knowing your business deeply and with a clear point of view on what it’s worth. To further prepare to respond to an offer it is a good exercise to set a floor. If you are seeking an equity deal, know how much you want for what percentage of ownership. If you are seeking debt, go in with an idea of how the timing and amount of repayment will affect projected cashflows. This will allow you to evaluate offers more fully and to be aware when an offer doesn’t meet your needs.
Even with a full understanding of your needs and position in the negotiation, it can be particularly difficult for women entrepreneurs to assert that position. This makes sense in a world where those raised as female are conditioned toward traditional gender roles, and “assertive behavior is perceived as incompatible with traditional female roles” (Forbes). In fact, the same article cites that women making statements like I want or I need can trigger bias in the person they are attempting to negotiate with.
Regarding negotiation, I have found one of the simplest tips I learned to be one of the most effective: to pose a counteroffer using the phrase, “Would you consider…” This framing language positions your counter as a path for exploration rather than a demand. Start your response by acknowledging the positives of alignment between your organizations and positions to highlight your desire to enter into a deal, then share your view of an approach that meets your needs in a way that invites a dialogue rather than as an ultimatum.
While we all must continue to work for sweeping systemic change to improve all forms of inclusivity in business and investing, these are my three takeaways for women raising capital who want to stay a step ahead of bias in the process:
- Network: Be bold, be authentic, be generous. Take an organized and proactive approach to building your investor network before you need it.
- Navigation: Use the awareness that investors tend to ask prevention rather than promotion questions of women to prepare to perceive questions as interest rather than doubt, to answer with a positive spin, and to link questions to key stories that highlight your best attributes.
- Negotiation: When seeking to raise capital know your value and the minimum you are willing to accept. Be prepared to counter offers with framing that promotes a dialogue, such as would you consider?
For the investors reading here, addressing implicit bias starts with awareness. Now that you have reviewed these tips for women entrepreneurs, consider your role in this process, and look for opportunities to level the playfield in how you interact with all founders.
By Lisa Hanson