The venture capital gender gap from female founder perspective

Finnish female entrepreneurs, similarly to other European and American female entrepreneurs, raise only a small portion of the venture capital funds invested on the market when compared to their male peers. While this venture capital gender gap has been studied by researchers from some angles, little has been written about what female founders themselves think about the reasons behind the funding disparity. Even less is known about the thoughts and experiences of Finnish female founders in particular. As part of my master’s thesis, I have conducted in-depth interviews with eight Finnish female founders of VC-backed companies in the pre-seed, seed and A round stages in an attempt to provide their perspectives on the matter. Due to space limitations, this summary addresses only a few of them.

Previous research has suggested that the venture capital gender gap derives from both entrepreneur-driven reasons and investor-driven reasons. In other words, there is evidence of the gender funding gap being a complex phenomenon, which can be attributed both to the choices of women themselves and to the existing structures of the venture capital market. In this regard, the results from my study are consistent with earlier research. When it comes to entrepreneur-driven reasons, many of the respondents explained that women rarely choose the path as a high-growth startup entrepreneur, and when they do, they tend to focus more on B-to-C business than on B-to-B business, which is more easily scalable and thus more attractive to VCs. Most respondents thought that there are certain cultural and societal reasons for women making these choices.

Further on the so-called entrepreneur-driven reasons, experts (note, not research) have proposed that part of the venture capital gender gap could be explained by women being more conservative in their financial projections than men, which results in them simply asking for less money and granting larger ownership shares in their companies to VCs. Indeed, some research has shown that female founders tend to set lower funding goals than their male counterparts. However, the results from my study indicate that this may not be caused  by female conservatism. What instead seems to matter the most is social capital. Most respondents had been told by friends and investors in their network what figures VCs expect to see, whereafter the respondents had adjusted their financial projections accordingly. These projections were not only based on assumptions about real-life market conditions, but were to a large extent driven by the rates of return required by the VCs. Therefore, a relevant question for further research would be whether lower funding goals of female founders could be related to them not being informed enough about the specific rules of the venture capital game (e.g., this somewhat unconventional top-down approach to financial forecasting) through their networks.

Scholars have long suggested that the venture capital gender gap is partly caused by female founders not having clout in the right business circles. Structural barriers in the form of male social ties have been regarded as an investor-driven reason behind the gender funding gap. While prior research mainly emphasizes the role of networks in getting warm introductions and referrals to VCs, most respondents in my study emphasized that early-stage startup founders need networks not only to connect with potential investors, but also and particularly to learn about the venture capital industry and to identify best practices. Networks appear to be essential throughout the fundraising process from the initial preparations to the closing of the deal. These results indicate that differences in the networks of male and female founders may play an even more important role in the discussion than what prior research has implied.

Another investor-driven reason brought up in previous literature is gender bias. For example, research has shown that investors prefer verbal pitches performed by male founders and ask different types of questions from male and female founders. Since my study only provides one-sided perspectives (both in terms of gender and role) of a limited number of female founders, conclusions about the existence or non-existence of gender bias on the venture capital market would not be well-founded. However, based on the comments from the respondents, it appears that there is plenty of room for more research on the potential effect of stereotypical beliefs about women on the venture capital gender gap.

To alleviate the venture capital gender gap in the future, some respondents suggested that we should start shifting focus away from gender in society in general and especially with young children. Others called for more discussion about the topic of having a baby while running a startup, since many women may choose to refrain from starting a high-growth business because they believe that it is incompatible with having a family. As for the steps that investors could take, it appears important to engage in the mentoring of female founders if and when such opportunities arise. Moreover, LPs could also play a role, by reviewing the evaluation criteria used by VCs for investment decisions to see whether they can identify any room for improvement. After all, women make up half of the Finnish economy, whereby realizing their full potential could release a wave of growth and innovation.

Christa Anttila on vuoden 2020 Gradukilpailun voittaja.