Untangling Implicit Bias in Venture
Exploring the economic impact of gender bias in the world of venture capital and startups
Let’s start this series off by unpacking the problem of implicit bias in business terms. Understanding the data, both empirical and experiential, is essential for understanding the lens through which I write.
As almost all of my male friends and counterparts can attest to, I believe and consistently vocalize that biases are maintained if we do not confront them head-on.
Without shedding light on structures of inequality we cannot make them visible, and without making them visible they will not be challenged.
While I believe that a large portion of the gender-biased comments I’ve observed are delivered without malice, we must remember that intent does not supersede impact. In other words, a person’s intent when speaking a comment, making a joke, or my personal favorite — assuming I am the personal assistant and in charge of constantly coordinating everyone else’s schedule — is not what is important when assessing the appropriateness of the action. Rather, it is the impact that is important.
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Like racism, gender biases can be implicit. Without intentional malice, most of us (dare I say, all of us?) subconsciously uphold ingrained biases. To repeat this in another way that hopefully further prevents any defensiveness — subconscious bias is referring to biases we don’t consciously realize we hold. Without work to understand these biases, we cannot dismantle them.
Practically from birth, we absorb biases through popular media, through the advertising we consume, and the versions of history we learn in school. Every time a biased comment is issued without being challenged, whether it is presented in jest or with ill intent, our prejudices are reinforced and reified. There are thousands of studies affirming that we treat people differently based on the cultural meaning their identities hold for us.
These often passively-held biases manifest in insidious ways: let’s explore their impact on the business world.
A 2017 peer-reviewed Swedish study reported that in the world of VCs, male founders received 52% of the entirety of funds requested, while only 25% of requested funds were approved for female founders. Keep in mind, these numbers come out of Sweden, a country known as one of the most gender-egalitarian societies in the world (scoring within the top five in The Global Gender Gap Index 2020 Rankings).
The authors of the study note that: “…ingrained gender stereotypes appear to profoundly shape investment decisions by coloring how investors see individuals, and even the exact same characteristic (such as aggression) when expressed by different genders”. All financiers who participated in the study strongly denied that gender influenced their financing decisions. Still, the data made clear that being female was a disadvantage when it came to receiving VC funds.
The gender gap stats on the U.S. (coming in at number 53 in The Global Gender Gap Index 2020 Rankings) are disappointing. As reported by Crunchbase, Q2 of 2019 saw only 3% of VC funding going to all-female teams.
As you might expect, the numbers don’t look great for female VCs either. Only nine out of the 100 top VC partners worldwide are female, and women make up only 11% of VC deciders (investment partners) in the U.S. This reflects not only the oft-remarked “legacy bias” of the “old boy’s club” demographic of VCs but also speaks to the barriers to entry facing female leaders in venture and funding female-led startups.
Some may say this is a pipeline problem, a claim with which I vehemently disagree and a debate that, while warranting a mention here, really calls for an entire write-up of its own — stay tuned.
Here is a spoiler: It’s not a pipeline problem, it’s your network that is the problem.
If you need more proof, look at the data.
The economic evidence is clear. The OECD has estimated that gender gaps cause an average income loss of 15% in the OECD alone, higher when emerging economies are also factored in. A recent IMF staff study, drawing on macroeconomic, sectoral, and firm-level data, suggests that closing country-level gender gaps can produce economic benefits even more extensive than previously understood.
According to the study, in countries where gender gaps are largest, closing them adds an average of 35% to GDP.
As the authors of the study explain, greater gender parity makes for higher levels of profitability simply because the addition of a different demographic in a work environment produces a greater diversity across perspectives, skills, and attitudes toward risk and collaboration. Greater gender diversity, in turn, boosts both growth and incomes, specifically exceeding the improvement that comes from merely adding workers.
As stated in the World Economic Forum’s 2017 Global Gender Gap Report: “female talent remains one of the most underutilized business resources”.
It turns out that empowering women to exercise economic power is one of the most promising entry points for producing greater gender equality overall.
A Dream of Spring
While these facts and figures are daunting, the winds of winter are subsiding, and we can now realistically dream of spring. (For those of you not familiar with George R.R. Martin’s A Song of Ice and Fire series, A Dream of Spring is the title of his final book expected to be a time for the people of Westeros to rebuild and start anew.)
A significant effort to increase female participation in the market has taken hold globally, which should also reverberate through startups and venture capital. From the dominance of female-targeted microfinance initiatives in the Global South to the rise of gender lens investing on home soil, people are beginning to see that when you put money in the hands of women, everyone benefits.
To help further close the gap in female-led startup funding, and in-turn helping to close the gap of economic disparity, there are female-focused funds like Houston-based The Artemis Fund, female-led but not necessarily female-focused funds like Grit Ventures and Chingona Ventures, and a notable shift in the broader VC community to make a conscious effort to find and fund companies with diverse teams. On the last point, whether the money will follow these promises is yet to be determined. To start, VCs must put women investors into decision making roles. As mentioned previously, fewer than 11% of decision-makers at VC funds are women.
The stubborn lack of gender parity in venture is absolutely a challenge, but as an insider into this world, I recognize the immense power this space holds for confronting the inequality.
Innovation holds the keys to driving socio-economic transformations. Innovative startups can be a powerful foothold for women to cultivate a deeper engagement in the world of business, build wealth and hold the door open for more to follow. But for that to happen, women entrepreneurs must get venture funding.
The data speaks for itself. Our biases are holding us back socially and are also economically stunting.
It’s time we acknowledge that ingrained biases — no matter their intent — will naturally seep into decision-making processes, which in turn reinforce systems that are counter-productive to economic growth. We’ve got a long way to go until there are just as many female founders as male receiving funding from just as many female VCs as male. And while our biases may seem like threads tangled up in society, illuminating these threads is surely the first step to unraveling them.
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