Marta Zaccagnini
Women and underrepresented founders are not going to wait around for the VC industry to transform itself, so what can be done in the meantime?
The organization I work for, Village Capital, recently worked with the International Finance Corporation (IFC), academic researchers, and a consortium of partners to identify ways to address discrepancies in investor behavior when evaluating startups.
Here are a few tips for founders based on our findings and other research studies, coupled with my experience providing acceleration support to over 100 underrepresented founders.
During the due diligence process, investors tend to ask women-led startups more risk- or prevention-related questions and men-led startups more growth- or promotion-related questions. A Harvard Business Review study found that the majority of entrepreneurs (85%) responded to questions in a manner that matched the question’s orientation — a promotion question leads to a promotion answer, and a prevention question leads to a prevention answer — which is problematic, as it perpetuates the cycle of bias in the Q&A process.
Flip this on its head by preparing growth-related responses to risk-related questions. For example, if an investor asks you about the potential negative effects of incoming regulations, you can use the opportunity to also highlight incoming regulations or legislation that will lead to growth opportunities for your company.
As Kimberley Abbott from Vested Impact, whose startup assesses the quantifiable and detailed impact of companies, says, “People think entrepreneurs are risk-averse, but the best are incredibly risk aware. So whenever I get asked about risks, I always talk about the opportunity I see that managing that risk brings. Being good at managing risk can be a competitive advantage in itself!”
When investors consider early-stage companies, they are evaluating a founding team’s potential, which is hard to quantify. To counter investors’ reliance on gut instinct (which tends to favor men), make sure that you can track and succinctly communicate how your strategy has improved and evolved over time, as this demonstrates that you have the know-how to continue to learn, adapt, and make meaningful progress on your path toward continual growth.
For example, this could include recording changes that you have made to your MVP based on user feedback, or changes to your business model based on funder feedback.
Move away from only considering the venture-based capital financing system. As Esme Verity from Considered Capital, an advisory firm helping startups raise non-VC capital, said, “We’re seeing a big increase in interest from (predominantly) women-led startups who want to explore raising money for their startups that are not just equity based. Whether with grants, revenue-based financing or loans, there is a growing movement away from the thinking that VC is the holy grail of startup funding.”
Check out the interactive digital tool we’ve created to help entrepreneurs explore the broader spectrum of options and initially assess potential suitability.
I don’t have enough fingers and toes to count the number of founders who have completed our accelerator program and commented on how they applied based on the grant money but left with an invaluable community of fellow entrepreneurs and supporters.
There are an ever-increasing number of networks for underrepresented founders popping up all over Europe — find your people and connect with them to meet investors specifically interested in your demographic or sector, and then use their investor bias to your advantage.
Participate in startup support programs that will help you nail your pitch, business model, and growth strategy according to your current stage — and that will then connect you with relevant investors. As someone who runs an accelerator program, I’m always taken aback by startups that have been fundraising before they can properly articulate how their product is going to create value and a financial return. You will only have one shot to impress your future financial backers — make sure you are confident and ready.
While women and underrepresented founders can use these tips to overcome investor bias in the short-term and improve their chance to secure investment, the onus is still on investors to change a broken funding system from within.
Hiring a more diverse investment team and reducing discrepancies in evaluation processes that lead to overlooking women-led startups have proven to significantly reduce the bias in the way investors evaluate founding teams. I look forward to the day when the dial switches.
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