TEDxPeachtree
Dana Kanze: The real reason female entrepreneurs get less funding
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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.
Dana Kanze - Researcher
Dana Kanze is a doctoral fellow at Columbia Business School where she applies behavioral insights to understand sources of inequality in entrepreneurship. Full bio
Dana Kanze is a doctoral fellow at Columbia Business School where she applies behavioral insights to understand sources of inequality in entrepreneurship. Full bio
Double-click the English transcript below to play the video.
00:17
This is me at five years old,
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shortly before jumping
into this beautifully still pool of water.
into this beautifully still pool of water.
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I soon find out the hard way
that this pool is completely empty
that this pool is completely empty
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because the ice-cold water
is near freezing
is near freezing
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and literally takes my breath away.
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Even though I already know how to swim,
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I can't get up to the water's surface,
no matter how hard I try.
no matter how hard I try.
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That's the last thing I remember
trying to do before blacking out.
trying to do before blacking out.
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Turns out, the lifeguard on duty
had been chatting with two girls
had been chatting with two girls
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when I jumped in,
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and I was soon underwater,
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so he couldn't actually
see or hear me struggle.
see or hear me struggle.
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I was eventually saved
by a girl walking near the pool
by a girl walking near the pool
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who happened to look down and see me.
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The next thing I know,
I'm getting mouth-to-mouth
I'm getting mouth-to-mouth
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and being rushed to the hospital
to determine the extent of my brain loss.
to determine the extent of my brain loss.
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If I had been flailing
at the water's surface,
at the water's surface,
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the lifeguard would have noticed
and come to save me.
and come to save me.
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I share this near-death experience
because it illustrates
because it illustrates
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how dangerous things are
when they're just beneath the surface.
when they're just beneath the surface.
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Today, I study implicit
gender bias in start-ups,
gender bias in start-ups,
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which I consider to be
far more insidious than mere overt bias
far more insidious than mere overt bias
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for this very same reason.
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When we see or hear an investor
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behaving inappropriately
towards an entrepreneur,
towards an entrepreneur,
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we're aware of the problem
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and at least have a chance
to do something about it.
to do something about it.
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But what if there are subtle differences
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in the interactions
between investors and entrepreneurs
between investors and entrepreneurs
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that can affect their outcomes,
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differences that we're not conscious of,
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that we can't directly see or hear?
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02:06
Before studying start-ups
at Columbia Business School,
at Columbia Business School,
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I spent five years running
and raising money for my own start-up.
and raising money for my own start-up.
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02:13
I remember constantly racing around
to meet with prospective investors
to meet with prospective investors
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while trying to manage my actual business.
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At one point I joked
that I had reluctantly pitched
that I had reluctantly pitched
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each and every family member,
friend, colleague, angel investor
friend, colleague, angel investor
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and VC this side of the Mississippi.
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Well, in the process of speaking
to all these investors,
to all these investors,
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I noticed something
interesting was happening.
interesting was happening.
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I was getting asked a very different
set of questions than my male cofounder.
set of questions than my male cofounder.
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I got asked just about everything
that could go wrong with the venture
that could go wrong with the venture
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to induce investor losses,
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while my male cofounder was asked
about our venture's home run potential
about our venture's home run potential
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to maximize investor gains,
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essentially everything
that could go right with the venture.
that could go right with the venture.
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He got asked how many new customers
we were going to bring on,
we were going to bring on,
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while I got asked how we were going
to hang on to the ones we already had.
to hang on to the ones we already had.
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03:01
Well, as the CEO of the company,
I found this to be rather odd.
I found this to be rather odd.
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03:05
In fact, I felt like
I was taking crazy pills.
I was taking crazy pills.
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03:09
But I eventually
rationalized it by thinking,
rationalized it by thinking,
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maybe this has to do
with how I'm presenting myself,
with how I'm presenting myself,
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03:13
or it's something
simply unique to my start-up.
simply unique to my start-up.
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Well, years later I made the difficult
decision to leave my start-up
decision to leave my start-up
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so I could pursue a lifelong dream
of getting my PhD.
of getting my PhD.
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It was at Columbia that I learned
about a social psychological theory
about a social psychological theory
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originated by Professor Tory Higgins
called "regulatory focus,"
called "regulatory focus,"
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which differentiates between
two distinct motivational orientations
two distinct motivational orientations
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of promotion and prevention.
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A promotion focus is concerned with gains
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03:42
and emphasizes hopes, accomplishments
and advancement needs,
and advancement needs,
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while a prevention focus
is concerned with losses
is concerned with losses
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and emphasizes safety,
responsibility and security needs.
responsibility and security needs.
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Since the best-case scenario
for a prevention focus
for a prevention focus
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is to simply maintain the status quo,
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this has us treading water
just to stay afloat,
just to stay afloat,
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while a promotion focus instead
has us swimming in the right direction.
has us swimming in the right direction.
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04:08
It's just a matter
of how far we can advance.
of how far we can advance.
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Well, I had my very own eureka moment
when it dawned on me
when it dawned on me
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that this concept of promotion
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sounded a lot like the questions
posed to my male cofounder,
posed to my male cofounder,
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while prevention resembled
those questions asked of me.
those questions asked of me.
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As an entrepreneurship scholar,
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I started digging into the research
on start-up financing
on start-up financing
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and discovered there's an enormous gap
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between the amount of funds
that male and female founders raise.
that male and female founders raise.
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Although women found
38 percent of US companies,
38 percent of US companies,
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they only get two percent
of the venture funding.
of the venture funding.
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I got to thinking:
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what if this funding gap is not due
to any fundamental difference
to any fundamental difference
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in the businesses
started by men and women?
started by men and women?
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What if women get less funding than men
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due to a simple difference
in the questions that they get asked?
in the questions that they get asked?
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After all, when it comes
to venture funding,
to venture funding,
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entrepreneurs need to convince investors
of their start-up's home run potential.
of their start-up's home run potential.
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It's not enough to merely demonstrate
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you're going to lose
your investors' money.
your investors' money.
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05:15
So it makes sense that women
would be getting less funding than men
would be getting less funding than men
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if they're engaging
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in prevention as opposed to
promotion-oriented dialogues.
promotion-oriented dialogues.
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05:24
Well, I got the chance
to test this hypothesis
to test this hypothesis
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on companies with similar quality
and funding needs across all years
and funding needs across all years
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at the funding competition
known as TechCrunch Disrupt
known as TechCrunch Disrupt
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Startup Battlefield has run
in New York City
in New York City
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since its inception in 2010.
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TechCrunch is widely regarded as
the ideal place for start-ups to launch,
the ideal place for start-ups to launch,
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with participants including start-ups
that have since become household names,
that have since become household names,
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like Dropbox, Fitbit and Mint,
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presenting to some of the world's
most prominent VCs.
most prominent VCs.
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Well, despite the comparability
of companies in my sample,
of companies in my sample,
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male-led start-ups went on
to raise five times as much funding
to raise five times as much funding
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as the female-led ones.
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This made me especially curious to see
what's driving this gender disparity.
what's driving this gender disparity.
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Well, it took a while,
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but I got my hands on all the videos of
both the pitches and the Q and A sessions
both the pitches and the Q and A sessions
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from TechCrunch,
and I had them transcribed.
and I had them transcribed.
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I first analyzed the transcripts
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by loading a dictionary
of regulatory-focused terms
of regulatory-focused terms
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into the Linguistic Inquiry
and Word Count software called LIWC.
and Word Count software called LIWC.
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This LIWC software
generated the frequencies
generated the frequencies
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of promotion and prevention words
in the transcribed text.
in the transcribed text.
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As a second method,
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I had each of the questions
and answers manually coded
and answers manually coded
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by the Tory Higgins
Research Lab at Columbia.
Research Lab at Columbia.
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Regardless of the topic at hand,
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an intention can be framed
in promotion or prevention.
in promotion or prevention.
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Let's take that topic of customers
I mentioned briefly earlier.
I mentioned briefly earlier.
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A promotion-coded question sounds like,
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"How many new customers
do you plan to acquire this year?"
do you plan to acquire this year?"
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while a prevention-coded one sounds like,
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"How do you plan to retain
your existing customers?"
your existing customers?"
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During the same time,
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I also gathered background information
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on the start-ups and entrepreneurs
that can affect their funding outcomes,
that can affect their funding outcomes,
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like the start-up's age,
quality and funding needs
quality and funding needs
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and the entrepreneur's past experience,
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so I could use these data points
as controls in my analysis.
as controls in my analysis.
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Well, the very first thing that I found
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is that there's no difference in the way
entrepreneurs present their companies.
entrepreneurs present their companies.
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In other words, both male
and female entrepreneurs
and female entrepreneurs
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use similar degrees
of promotion and prevention language
of promotion and prevention language
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in their actual pitches.
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So having ruled out this difference
on the entrepreneur's side,
on the entrepreneur's side,
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I then moved on to the investor's side,
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analyzing the six minutes of Q&A sessions
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that entrepreneurs engaged in
with the VCs after pitching.
with the VCs after pitching.
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When examining the nearly 2,000 questions
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and corresponding answers
in these exchanges,
in these exchanges,
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both of my methods
showed significant support
showed significant support
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for the fact that male entrepreneurs
get asked promotion questions
get asked promotion questions
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and female entrepreneurs
get asked prevention questions.
get asked prevention questions.
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In fact, a whopping 67 percent
of the questions posed
of the questions posed
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to male entrepreneurs
were promotion-focused,
were promotion-focused,
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while 66 percent of those posed to female
entrepreneurs were prevention-focused.
entrepreneurs were prevention-focused.
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What's especially interesting
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is that I expected female VCs
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to behave similarly to male VCs.
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Given its prevalence in the popular media
and the venture-funding literature,
and the venture-funding literature,
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I expected the birds-of-a-feather
theory of homophily to hold here,
theory of homophily to hold here,
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meaning that male VCs
would favor male entrepreneurs
would favor male entrepreneurs
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with promotion questions
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and female VCs would do the same
for female entrepreneurs.
for female entrepreneurs.
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But instead, all VCs displayed
the same implicit gender bias
the same implicit gender bias
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manifested in the regulatory focus
of the questions they posed
of the questions they posed
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to male versus female candidates.
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So female VCs asked
male entrepreneurs promotion questions
male entrepreneurs promotion questions
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and then turned around and asked
female entrepreneurs prevention questions
female entrepreneurs prevention questions
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just like the male VCs did.
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So given the fact
that both male and female VCs
that both male and female VCs
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are displaying this implicit gender bias,
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what effect, if any, does this have
on start-up funding outcomes?
on start-up funding outcomes?
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My research shows
it has a significant effect.
it has a significant effect.
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The regulatory focus of investor questions
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not only predicted
how well the start-ups would perform
how well the start-ups would perform
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at the TechCrunch Disrupt competitions
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but also how much funding the start-ups
went on to raise in the open market.
went on to raise in the open market.
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Those start-ups who were asked
predominantly promotion questions
predominantly promotion questions
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went on to raise
seven times as much funding
seven times as much funding
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as those asked prevention questions.
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But I didn't stop there.
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I then moved on to analyze entrepreneurs'
responses to those questions,
responses to those questions,
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and I found that entrepreneurs
are apt to respond in kind
are apt to respond in kind
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to the questions they get,
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meaning a promotion question
begets a promotion response
begets a promotion response
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and a prevention question
begets a prevention response.
begets a prevention response.
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Now, this might make
intuitive sense to all of us here,
intuitive sense to all of us here,
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but it has some unfortunate consequences
in this context of venture funding.
in this context of venture funding.
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So what ends up happening
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is that a male entrepreneur
gets asked a promotion question,
gets asked a promotion question,
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granting him the luxury
to reinforce his association
to reinforce his association
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with the favorable domain
of gains by responding in kind,
of gains by responding in kind,
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while a female entrepreneur
gets asked a prevention question
gets asked a prevention question
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and inadvertently
aggravates her association
aggravates her association
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with the unfavorable domain
of losses by doing so.
of losses by doing so.
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These responses then trigger venture
capitalists' subsequent biased questions,
capitalists' subsequent biased questions,
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and the questions and answers
collectively fuel a cycle of bias
collectively fuel a cycle of bias
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that merely perpetuates
the gender disparity.
the gender disparity.
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Pretty depressing stuff, right?
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Well, fortunately, there's
a silver lining to my findings.
a silver lining to my findings.
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Those plucky entrepreneurs
who managed to switch focus
who managed to switch focus
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by responding to prevention questions
with promotion answers
with promotion answers
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went on to raise 14 times more funding
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than those who responded
to prevention questions
to prevention questions
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with prevention answers.
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So what this means
is that if you're asked a question
is that if you're asked a question
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about defending
your start-up's market share,
your start-up's market share,
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you'd be better served
to frame your response
to frame your response
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around the size and growth potential
of the overall pie
of the overall pie
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as opposed to how you merely plan
to protect your sliver of that pie.
to protect your sliver of that pie.
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So if I get asked this question,
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I would say,
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"We're playing in such a large
and fast-growing market
and fast-growing market
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that's bound to attract new entrants.
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We plan to take
increasing share in this market
increasing share in this market
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by leveraging our start-up's
unique assets."
unique assets."
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I've thus subtly redirected this dialogue
into the favorable domain of gains.
into the favorable domain of gains.
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Now, these results are quite compelling
among start-ups that launched at TechCrunch
among start-ups that launched at TechCrunch
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but field data can merely tell us
that there's a correlational relationship
that there's a correlational relationship
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between regulatory focus and funding.
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So I sought to see whether
this difference in regulatory focus
this difference in regulatory focus
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can actually cause funding outcomes
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by running a controlled experiment
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on both angel investors
and ordinary people.
and ordinary people.
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Simulating the TechCrunch
Disrupt environment,
Disrupt environment,
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I had participants listen
to four six-minute audio files
to four six-minute audio files
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of 10 question-and-answer exchanges
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that were manipulated
for promotion and prevention language,
for promotion and prevention language,
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and then asked them
to allocate a sum of funding
to allocate a sum of funding
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to each venture as they saw fit.
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Well, my experimental results
reinforced my findings from the field.
reinforced my findings from the field.
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Those scenarios where entrepreneurs
were asked promotion questions
were asked promotion questions
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received twice the funding allocations
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of those where entrepreneurs
were asked prevention questions.
were asked prevention questions.
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What's especially promising
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is the fact that those scenarios
where entrepreneurs switched
where entrepreneurs switched
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as opposed to matched focus
when they received prevention questions
when they received prevention questions
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received significantly more funding
from both sets of participants.
from both sets of participants.
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So to my female entrepreneurs out there,
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here are a couple
simple things you could do.
simple things you could do.
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The first is to recognize
the question you're being asked.
the question you're being asked.
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Are you getting a prevention question?
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If this is the case, answer
the question at hand by all means,
the question at hand by all means,
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but merely frame
your response in promotion
your response in promotion
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in an effort to garner higher amounts
of funding for your start-ups.
of funding for your start-ups.
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The unfortunate reality, though,
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is that both men and women
evaluating start-ups
evaluating start-ups
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display the same implicit
gender bias in their questioning,
gender bias in their questioning,
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inadvertently favoring
male entrepreneurs over female ones.
male entrepreneurs over female ones.
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So to my investors out there,
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I would offer that you have
an opportunity here
an opportunity here
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to approach Q&A sessions
more even-handedly,
more even-handedly,
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not just so that you
could do the right thing,
could do the right thing,
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but so that you can improve
the quality of your decision making.
the quality of your decision making.
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By flashing the same light
on every start-up's potential
on every start-up's potential
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for gains and losses,
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you enable all deserving
start-ups to shine
start-ups to shine
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and you maximize returns in the process.
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Today, I get to be that girl
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walking by the pool,
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sounding the alarm
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that something is going on
beneath the surface.
beneath the surface.
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Together, we have the power
to break this cycle
to break this cycle
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of implicit gender bias
in start-up funding.
in start-up funding.
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Let's give the most promising start-ups,
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regardless of whether
they're led by men or women,
they're led by men or women,
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a fighting chance to grow and thrive.
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Thank you.
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(Applause)
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ABOUT THE SPEAKER
Dana Kanze - ResearcherDana Kanze is a doctoral fellow at Columbia Business School where she applies behavioral insights to understand sources of inequality in entrepreneurship.
Why you should listen
Prior to embarking upon her PhD, Dana Kanze co-founded and ran a venture-funded startup for five years. Her experiences as a female entrepreneur and CEO inspired her to examine gender distinctions among founders. Her research embraces a mixed methods approach, combining field and archival studies that explore correlational relationships with controlled experiments that develop causal stories. Her work has been published in The Academy of Management and The Harvard Business Review and featured in Bloomberg, Business Insider, Entrepreneur, Forbes, Fortune and The Wall Street Journal, among others. Kanze graduated magna cum laude with a BS in economics from The Wharton School and began her career as an investment banker and strategic consultant.
Dana Kanze | Speaker | TED.com