To sustain diversity, investors must tune into their unconscious biases

When the pandemic struck last year, the fundraising world turned upside down. Due to shifting priorities, investors had to commit to taking care of their portfolio companies, the majority of which were led by white men.

Any funding opportunities we had in the pipeline evaporated. This was especially true for investors considering attempts to reach new and underrepresented founders.

But the fundraising market came back pretty quickly in 2020 — for some. And though we are thrilled to have closed a $1.5 million pre-seed round in the middle of a pandemic, the challenges we faced in the past continued. The spotlight only turned back on minority founders after the Black Lives Matter movement took off last summer, and we began to pursue fundraising again in late 2020. We could tell by how investors interacted with our pitch deck or asked us questions that they already had preconceived ideas about us and our business.

We were in our second year of running Handsome and had traction similar to, if not better than, other male-centric startups that were getting funded, yet we still ran into friction when fundraising. The hard part was that we didn’t have any concrete evidence as to why, or the extent to which, fundraising was harder for minority and female teams outside of our apparent challenges and personal experiences. Men are allowed to have a vision or an idea on the back of a cocktail napkin, while women need to have fully established businesses and revenue streams.

The evidence is in the analytics

DocSend, a tool that we and thousands of other startups use to send out pitch decks to investors, analyzed how investors interact with pitch decks. A recent DocSend study confirmed our hunch, finding that investors do indeed scrutinize the decks of businesses founded by women and minorities differently.

For instance, their data showed investors spent 20% longer on the business model section of decks from all-female teams at the pre-seed stage than all-male teams. While more time spent on a particular section of a deck may seem to indicate more interest, it can actually be a sign of greater scrutiny and skepticism.

We could tell by how investors interacted with our pitch deck or asked us questions that they already had preconceived ideas about us and our business.

When you look at the makeup of the average VC you are pitching to, it is likely a middle-aged white man. When pitching Handsome — something that’s reimagining the education and community of the beauty industry — you can imagine that most VCs don’t understand the value and opportunity at hand. Although beauty is a $190 billion global industry ($60 billion alone in the U.S.), investors who don’t follow this industry might have a hard time understanding how big it is, how the industry works, and how our business fits into this thriving market. Even further, investors might completely discredit our business because of the “beauty” label.

All these factors can lead to more time spent analyzing the business model — and its viability — articulated in our pitch deck. In reality, VCs are busy, and if they’re spending more time on the fundamentals of your business, they don’t understand it. It’s more likely they are looking for ways that your business won’t work. And, frankly, we are not business school graduates or Stanford alumni, so investors who want to de-risk their portfolios will spend more time looking at our deck to gauge if we know how to build a business.

More than goodwill is needed for lasting change

Despite all this, we believe that most of the time, investors don’t even know they are acting on these biases. They don’t realize they may have already written you off, which is part of the problem. Awareness of a subconscious bias is the first step toward making positive change. Investors may think they’re widening the funnel simply by taking a meeting or providing mentorship over coffee when, subconsciously, they’ve already counted you out.

Even though the barriers are being lowered, minority founders just starting out still have a hard time getting their foot in the door. Most underrepresented founders don’t have an established network, making it difficult to get even an initial introduction. That’s why these founders aren’t getting meetings. So even with more investor goodwill, founders are still unable to access the capital they need to grow their businesses.

It takes time and effort to enact meaningful changes. Truly committed people are going to work on these issues over the coming years and decades. It’s only on a longer time scale that we’re going to be able to tell whether investors promising change have delivered. Changing the demographics of the founders you fund requires year in, year out consistency, again and again and again.

Only then will we see a time when the future of great ideas is not hindered by the demographics of the people building businesses out of those ideas.