6 ms·

Evidence that investors penalize female founders for lack of industry fit

42 points by MyHypatia 6y ago

eloff 6y ago
The nice thing about any unconscious biases here based on gender or race is that money is directly at stake. If you can identify an overlooked segment of founders, you can invest in that group and get industry beating returns. I don't know the name of the VC company but I remember reading about one that only invests in female founders and not out of any charity, they correctly realized of their peers are overlooking female founders then they'll be a comparative bargain to invest in. Research like this is great to shine a light on it and get VCs to take notice. Their money will quickly follow - that's my prediction anyway.
- ivalm 6y ago
  This may or may not work. The gender diversity etf SHE, for example, has underperformed so far [0]. Again, this isn’t an indictment against female CEOs, just that one must consider non-gender factors (which could be conditioned on how society views gender). [0] - https://www.morningstar.com/etfs/arcx/she/performance https://www.morningstar.com/etfs/arcx/she/performance
  - coffeecat 6y ago
    It appears to me (based on the morningstar citation) that the SHE fund under-performs the index that it tracks, which is a gender-diversity index. So unless I'm missing something, this tells us nothing except that SHE's performance has been lousy relative to the SSGA gender-diversity index.
- GavinMcG 6y ago
  Only if their being overlooked is orthogonal to the forces that determine their success. If sexism does make it harder for them to succeed then maybe that's priced in accurately.
  - simonhamp 6y ago
    Presumed sexism in the wider market doesn’t mean actual sexism should take place during funding. It’s not a question of whether it’s priced in, it’s about giving everyone the same starting line. This was a really thoughtless comment in my opinion
    - sk5t 6y ago
      You are arguing against a different idea than was presented.
      - simonhamp 6y ago
        Not really. The previous comment was suggesting that sexism in the marketplace (the perception of a female CEO) is somehow being accounted for in a VCs decision. I’m arguing that VCs need to look at things differently - not just playing to the ‘strengths’ of the market just for a quick return, but actively creating opportunities for a perception change.
        zdragnar 6y ago
        "is" and "should" are two different things, and make two different arguments. Not that I disagree with your argument, but pointing out it is on different grounds than what it was posted in response to.
    - Judgmentality 6y ago
      The VCs are not inclined, obligated, or interested in "giving everyone the same starting line." They are interested in making profits. If it turns out that the world actually is sexist, racist, bigoted, or holds whatever unfair bias against potential founders - that means those founders are less likely to succeed and therefore a riskier investment!
      - simonhamp 6y ago
        It would be interesting to try to quantify risk based on gender and assumed market bias. My hunch is that the risk factor this introduces is at least an order of magnitude less significant than other risk factors, like having an appropriate go to market strategy or proper customer base research.
- pimlottc 6y ago
  That sounds like a nice thing for you as a potential investor, but it's not very nice for the female founders.
  - eloff 6y ago
    But it is, because it means the market will correct the problem quickly - unless there is actually some differential outcome between genders.
    - ivalm 6y ago
      It doesnt if the differential comes from systemic sexism. If female founders underperform because of external sexism then vc that fund female founders will also underperform. This is why it is important to fight sexism even if it costs more. Sexism/racism/etc are not self-correcting under market forces.
      - eloff 6y ago
        Yes, that's a entirely plausible and unfortunate outcome - in which case the market would not be able to correct it.
- areoform 6y ago
  I used to think so too, but markets can stay irrational longer than you can remain solvent. What makes PE a unique edge case is that it's also highly illiquid as a market. Transactions are rare/infrequent, there is no continuous mechanism or exchange for valuing stock. Exits, for a portfolio, are also rare enough that such a mis-pricing can take more than a fund's lifetime to correct. Women, in recent history, have always gotten the short-end of the stick. It has taken a long time for the biases in academia to be addressed at all, and even now we aren't quite there yet. Here are a few examples from history, Lise Meitner was the second woman in the world to gain a doctorate in physics. When she started, women weren't allowed to go to college, one of humanity's greatest minds spent her youth as a teacher. It was the only career available to her. When she tried to start doing research, she was refused, > The only difficulty was that Hahn told me in the course of our conversation that he had been given a place in the institute directed by Emil Fischer, and that Emil Fischer did not allow any women students into his lectures or into his institute. So Hahn had to ask Fischer whether he would agree to our starting work together. And after Hahn had spoken to Fischer, I went to him to hear his decision and he told me his reluctance to accept women students stemmed from an unfortunate experience he had had with a Russian student because he had always been worried lest her rather exotic hairstyle result in her hair catching alight on the Bunsen burner. - https://www.iaea.org/sites/default/files/publications/magazines/bulletin/bull6-1/06101400412.pdf https://www.iaea.org/sites/default/files/publications/magazi... Fischer relented with pressure from Hahn, but in some cases, it took nearly half a decade for people to allow her to work with them. She lost years banging her head against the wall. What else could she have discovered had she gotten the right resources from the start? She prevailed against these barriers, but she was never recognized as an equal. Recognition eluded her. Lise and Otto discovered fission together, Hahn got the Nobel, she didn't. Decades afterwards, the first Pulsar was detected by Jocelyn Bell Burnell. She helped build the array that made the discovery. She spent her nights looking at the data. She noticed the anomaly. She championed it when her supervisor dismissed it as a glitch. Her persistence paid off, and her supervisor got the Nobel. Women have never been accepted as equal. Even in bastions of "non-conformist" thought such as universities. After all, how radical and non-conformist could these systems be if they repeated the same mistakes as the societies around them? They excluded people for being Jewish, for being born with the wrong sex organs, for having the wrong skin color, for being the wrong person. They were radical along some axes, but conformist along others. VC/PE is much the same. The industry is radical along some axes but extremely conformist along others. And it's not an easy thing to "correct". Banging against this wall will crack your skull far before it shows even the slightest crack. I don't know the answer here. Except that it wouldn't be the right stuff to give up.
- trentnix 6y ago
  That's precisely the point Milton Friedman made regarding the 'wage gap' when asked about it 40 years ago. He noted that if one group of people could be every bit as productive as another at a fraction of the cost, that's a compelling competitive advantage. But as others became aware of the advantage, the overlooked group of people would find themselves more sought after. And that would drive up their wages and increase their opportunities. https://www.youtube.com/watch?v=hsIpQ7YguGE https://www.youtube.com/watch?v=hsIpQ7YguGE
  - david38 6y ago
    Yes, sometimes, like moving jobs to India. Other times, no, because it would mean that group is just as good as me, and I can’t have that.
    - trentnix 6y ago
      That's the thing: one's bias and one's bigotry are competitive disadvantages. A competitor without those biases and bigotry would have a financial and strategic advantage. As Friedman points out, the market punishes the bigot when the market is permitted to do so. Only the government can prevent the bigoted businessman from paying the price for his bigotry. The underlying problem with letting the market handle things, as far as I can tell, is that the activists can't claim credit for punishment administered by the market.
  - eloff 6y ago
    I wouldn't say he was wrong. It did mostly correct itself. Today there's very little of the wage gap that you could possibly attribute to sexism. That's not to say it's zero and sexism is no more - but it's the smaller part of the problem now. The wage gap is mostly a motherhood gap. For those women who choose to become mothers, suddenly there are more important things in life than the company's priorities. They start falling behind women who didn't have children, and men who carry less of the work of the household. This is surprisingly not common knowledge by now even though it's well supported by data and well discussed by feminists, including Hillary Clinton. Speaking about populations in general and not individuals - women with children on average earn less because work isn't the highest priority in their lives. I think they're the smart ones. The other major component of the wage gap is that women on average aren't as well represented in higher paying fields like STEM fields, or work that's physically dangerous and undesirable - but pays well. With that latter segment of jobs, again one could argue women are being smarter about it. This is true even in the most enlightened countries like the Scandinavian countries - in fact it's more true there. I think the only way to address that is to get it into the heads of young girls who're still in school that those STEM jobs can be women's jobs. How to accomplish that is still a mystery.
- TT3351 6y ago
  Some people in the art world are pushing this as well. Art by female artists tends to be undervalued, and it's already going up. There's an interesting combination of hype building and equity appeals -- of course who's buying what expensive art really matters very little to people experiencing sexism.
jariel 6y ago
It's really hard to measure these things because there's so much nuance in every investment decision. One interesting artifact from the abstract though: there is no such thing really as 'Female Dominated Industries'. While there are industries which are mostly male, even in tech, management and above is very male ... supposedly 'female industries' are not as lop-sided. In fashion and cosmetics there are tons of men. Though in early-childhood education it may be very female at the instructor level, it most certainly is not for companies that develop products and services in that industry. So not to discount the sentiment, rather to say 'it's hard'.
- deleted 6y ago
  [deleted]
kepler1 6y ago
Bias this, discrimination that, etc. etc. If female entrepreneurs are being overlooked and being shortchanged for their talents, someone go start a fund that seeks out such undervalued assets and prove it by investing in them and making a lot of money. Until you put a $ value on it, this is just hurt feelings. Go find the $ value and change it.
- AntiImperialist 6y ago
  It's the same dipshits who will never put their own money on female-founded businesses who will also downvote comments like yours to make themselves feel better about it. If such discrimination is happening and there is absolutely no substantial reason for it, creating a venture fund which only invests in women-founded businesses should perform better than the competition. Except who is going to put money in it? I can tell you who will not: these downvoting dipshits.
  - cortesoft 6y ago
    I don’t put my money in a women only venture fund for the same reason I don’t put it in any other venture fund... I don’t have venture fund money.
  - AltonWells 6y ago
    It’s insane how upset you get over people downvoting the shrugging off of idea that women should have better access to capital or have unfair standards. “OH iT SHoUlD PeRfoRM BetTer” There are people putting money directly into women owned and found businesses. MOSTLY women because they’ve experienced this bullshit and higher more unattainable standards. It’s a nascent movement a few years old with tiny drops of money comparative to the annual investment pool.
    - rmak 6y ago
      Equality is sexism if you are used to privileged treatment. Women are used to get there way in schools. You'd get higher marks just for being a girl. Female teachers mark down boys. They get their own spaces while male only spaces are shut down. Then when it comes to higher education women get almost all scholarships even when they are 60% of college gradates. When it comes to job opportunities you have affirmative action, female only quotas and so on. Teachers 'give higher marks to girls' https://www.bbc.com/news/education-31751672 https://www.bbc.com/news/education-31751672 Research shows that teachers punish boys more harshly than girls for the same standard of misbehaviour. https://www.seattletimes.com/education-lab/same-behavior-problems-hinder-boys-more-than-girls/ https://www.seattletimes.com/education-lab/same-behavior-pro... The calculated grading system being used for this year's Leaving Certificate has been designed to ensure that overall girls will do better than boys https://www.independent.ie/irish-news/education/girls-to-do-better-than-boys-in-calculated-grade-leaving-cert-exams-as-gender-trends-will-be-built-into-results-39454619.html https://www.independent.ie/irish-news/education/girls-to-do-... 92 percent of sex-specific scholarships are reserved for women, study finds https://www.saveservices.org/2019/05/pr-widespread-sex-discrimination-found-in-college-scholarship-programs/ https://www.saveservices.org/2019/05/pr-widespread-sex-discr... Women receive full letter grade higher marks for similar essay compared to men. https://phys.org/news/2020-05-women-told-white-lies-men.html https://phys.org/news/2020-05-women-told-white-lies-men.html
maxdo 6y ago
I have the same example with female based products( beauty). Two guys in the meeting room were question... why this business? Every second investor. But yeah, that's not a popular topic :)
- crowf 6y ago
  To bad I can't read anything directly from them. After a quick Google search 2 top women's fashion companies, Calvin Klein and Gucci, were both founded by men.
- rmak 6y ago
  Now do boys and female teachers. See nobody thinks it is sexists to have almost all your elementary teachers female. Female Teachers Give Male Pupils Lower Marks, Claims Study https://www.huffingtonpost.co.uk/2012/02/16/female-teachers-give-male_n_1281236.html https://www.huffingtonpost.co.uk/2012/02/16/female-teachers-...
david38 6y ago
At what point would you say women control enough money to fund enough companies for this to not be much of an issue? Say you have $1B in VC money provided by women and their male allies. How many companies can that fund? How much press can that get? Over a few years, with new rounds being raised every year, will attitudes change? With this press, is there a subset of female C levels and directors that want to work for a female CEO? I am pretty sure there is. Can this lead to companies that are female majority C-suite? For sure. Sure, you might start in more traditional female markets, making products targeting women, but it would spread. The real win will be when there is enough cooperation to pull this off. Women control a MASSIVE amount of money in the US. A few billion is peanuts. How hard can this be to put together?

42 points by MyHypatia 6y ago

The nice thing about any unconscious biases here based on gender or race is that money is directly at stake. If you can identify an overlooked segment of founders, you can invest in that group and get industry beating returns. I don't know the name of the VC company but I remember reading about one that only invests in female founders and not out of any charity, they correctly realized of their peers are overlooking female founders then they'll be a comparative bargain to invest in. Research like this is great to shine a light on it and get VCs to take notice. Their money will quickly follow - that's my prediction anyway.

ivalm 6y ago
This may or may not work. The gender diversity etf SHE, for example, has underperformed so far [0]. Again, this isn’t an indictment against female CEOs, just that one must consider non-gender factors (which could be conditioned on how society views gender). [0] - https://www.morningstar.com/etfs/arcx/she/performance https://www.morningstar.com/etfs/arcx/she/performance
- coffeecat 6y ago
  It appears to me (based on the morningstar citation) that the SHE fund under-performs the index that it tracks, which is a gender-diversity index. So unless I'm missing something, this tells us nothing except that SHE's performance has been lousy relative to the SSGA gender-diversity index.
GavinMcG 6y ago
Only if their being overlooked is orthogonal to the forces that determine their success. If sexism does make it harder for them to succeed then maybe that's priced in accurately.
- simonhamp 6y ago
  Presumed sexism in the wider market doesn’t mean actual sexism should take place during funding. It’s not a question of whether it’s priced in, it’s about giving everyone the same starting line. This was a really thoughtless comment in my opinion
  - sk5t 6y ago
    You are arguing against a different idea than was presented.
    - simonhamp 6y ago
      Not really. The previous comment was suggesting that sexism in the marketplace (the perception of a female CEO) is somehow being accounted for in a VCs decision. I’m arguing that VCs need to look at things differently - not just playing to the ‘strengths’ of the market just for a quick return, but actively creating opportunities for a perception change.
      - zdragnar 6y ago
        "is" and "should" are two different things, and make two different arguments. Not that I disagree with your argument, but pointing out it is on different grounds than what it was posted in response to.
  - Judgmentality 6y ago
    The VCs are not inclined, obligated, or interested in "giving everyone the same starting line." They are interested in making profits. If it turns out that the world actually is sexist, racist, bigoted, or holds whatever unfair bias against potential founders - that means those founders are less likely to succeed and therefore a riskier investment!
    - simonhamp 6y ago
      It would be interesting to try to quantify risk based on gender and assumed market bias. My hunch is that the risk factor this introduces is at least an order of magnitude less significant than other risk factors, like having an appropriate go to market strategy or proper customer base research.
pimlottc 6y ago
That sounds like a nice thing for you as a potential investor, but it's not very nice for the female founders.
- eloff 6y ago
  But it is, because it means the market will correct the problem quickly - unless there is actually some differential outcome between genders.
  - ivalm 6y ago
    It doesnt if the differential comes from systemic sexism. If female founders underperform because of external sexism then vc that fund female founders will also underperform. This is why it is important to fight sexism even if it costs more. Sexism/racism/etc are not self-correcting under market forces.
    - eloff 6y ago
      Yes, that's a entirely plausible and unfortunate outcome - in which case the market would not be able to correct it.
areoform 6y ago
I used to think so too, but markets can stay irrational longer than you can remain solvent. What makes PE a unique edge case is that it's also highly illiquid as a market. Transactions are rare/infrequent, there is no continuous mechanism or exchange for valuing stock. Exits, for a portfolio, are also rare enough that such a mis-pricing can take more than a fund's lifetime to correct. Women, in recent history, have always gotten the short-end of the stick. It has taken a long time for the biases in academia to be addressed at all, and even now we aren't quite there yet. Here are a few examples from history, Lise Meitner was the second woman in the world to gain a doctorate in physics. When she started, women weren't allowed to go to college, one of humanity's greatest minds spent her youth as a teacher. It was the only career available to her. When she tried to start doing research, she was refused, > The only difficulty was that Hahn told me in the course of our conversation that he had been given a place in the institute directed by Emil Fischer, and that Emil Fischer did not allow any women students into his lectures or into his institute. So Hahn had to ask Fischer whether he would agree to our starting work together. And after Hahn had spoken to Fischer, I went to him to hear his decision and he told me his reluctance to accept women students stemmed from an unfortunate experience he had had with a Russian student because he had always been worried lest her rather exotic hairstyle result in her hair catching alight on the Bunsen burner. - https://www.iaea.org/sites/default/files/publications/magazines/bulletin/bull6-1/06101400412.pdf https://www.iaea.org/sites/default/files/publications/magazi... Fischer relented with pressure from Hahn, but in some cases, it took nearly half a decade for people to allow her to work with them. She lost years banging her head against the wall. What else could she have discovered had she gotten the right resources from the start? She prevailed against these barriers, but she was never recognized as an equal. Recognition eluded her. Lise and Otto discovered fission together, Hahn got the Nobel, she didn't. Decades afterwards, the first Pulsar was detected by Jocelyn Bell Burnell. She helped build the array that made the discovery. She spent her nights looking at the data. She noticed the anomaly. She championed it when her supervisor dismissed it as a glitch. Her persistence paid off, and her supervisor got the Nobel. Women have never been accepted as equal. Even in bastions of "non-conformist" thought such as universities. After all, how radical and non-conformist could these systems be if they repeated the same mistakes as the societies around them? They excluded people for being Jewish, for being born with the wrong sex organs, for having the wrong skin color, for being the wrong person. They were radical along some axes, but conformist along others. VC/PE is much the same. The industry is radical along some axes but extremely conformist along others. And it's not an easy thing to "correct". Banging against this wall will crack your skull far before it shows even the slightest crack. I don't know the answer here. Except that it wouldn't be the right stuff to give up.
trentnix 6y ago
That's precisely the point Milton Friedman made regarding the 'wage gap' when asked about it 40 years ago. He noted that if one group of people could be every bit as productive as another at a fraction of the cost, that's a compelling competitive advantage. But as others became aware of the advantage, the overlooked group of people would find themselves more sought after. And that would drive up their wages and increase their opportunities. https://www.youtube.com/watch?v=hsIpQ7YguGE https://www.youtube.com/watch?v=hsIpQ7YguGE
- david38 6y ago
  Yes, sometimes, like moving jobs to India. Other times, no, because it would mean that group is just as good as me, and I can’t have that.
  - trentnix 6y ago
    That's the thing: one's bias and one's bigotry are competitive disadvantages. A competitor without those biases and bigotry would have a financial and strategic advantage. As Friedman points out, the market punishes the bigot when the market is permitted to do so. Only the government can prevent the bigoted businessman from paying the price for his bigotry. The underlying problem with letting the market handle things, as far as I can tell, is that the activists can't claim credit for punishment administered by the market.
- eloff 6y ago
  I wouldn't say he was wrong. It did mostly correct itself. Today there's very little of the wage gap that you could possibly attribute to sexism. That's not to say it's zero and sexism is no more - but it's the smaller part of the problem now. The wage gap is mostly a motherhood gap. For those women who choose to become mothers, suddenly there are more important things in life than the company's priorities. They start falling behind women who didn't have children, and men who carry less of the work of the household. This is surprisingly not common knowledge by now even though it's well supported by data and well discussed by feminists, including Hillary Clinton. Speaking about populations in general and not individuals - women with children on average earn less because work isn't the highest priority in their lives. I think they're the smart ones. The other major component of the wage gap is that women on average aren't as well represented in higher paying fields like STEM fields, or work that's physically dangerous and undesirable - but pays well. With that latter segment of jobs, again one could argue women are being smarter about it. This is true even in the most enlightened countries like the Scandinavian countries - in fact it's more true there. I think the only way to address that is to get it into the heads of young girls who're still in school that those STEM jobs can be women's jobs. How to accomplish that is still a mystery.
TT3351 6y ago
Some people in the art world are pushing this as well. Art by female artists tends to be undervalued, and it's already going up. There's an interesting combination of hype building and equity appeals -- of course who's buying what expensive art really matters very little to people experiencing sexism.

jariel 6y ago

It's really hard to measure these things because there's so much nuance in every investment decision. One interesting artifact from the abstract though: there is no such thing really as 'Female Dominated Industries'. While there are industries which are mostly male, even in tech, management and above is very male ... supposedly 'female industries' are not as lop-sided. In fashion and cosmetics there are tons of men. Though in early-childhood education it may be very female at the instructor level, it most certainly is not for companies that develop products and services in that industry. So not to discount the sentiment, rather to say 'it's hard'.

deleted 6y ago
[deleted]

kepler1 6y ago

Bias this, discrimination that, etc. etc. If female entrepreneurs are being overlooked and being shortchanged for their talents, someone go start a fund that seeks out such undervalued assets and prove it by investing in them and making a lot of money. Until you put a $ value on it, this is just hurt feelings. Go find the $ value and change it.

AntiImperialist 6y ago
It's the same dipshits who will never put their own money on female-founded businesses who will also downvote comments like yours to make themselves feel better about it. If such discrimination is happening and there is absolutely no substantial reason for it, creating a venture fund which only invests in women-founded businesses should perform better than the competition. Except who is going to put money in it? I can tell you who will not: these downvoting dipshits.
- cortesoft 6y ago
  I don’t put my money in a women only venture fund for the same reason I don’t put it in any other venture fund... I don’t have venture fund money.
- AltonWells 6y ago
  It’s insane how upset you get over people downvoting the shrugging off of idea that women should have better access to capital or have unfair standards. “OH iT SHoUlD PeRfoRM BetTer” There are people putting money directly into women owned and found businesses. MOSTLY women because they’ve experienced this bullshit and higher more unattainable standards. It’s a nascent movement a few years old with tiny drops of money comparative to the annual investment pool.
  - rmak 6y ago
    Equality is sexism if you are used to privileged treatment. Women are used to get there way in schools. You'd get higher marks just for being a girl. Female teachers mark down boys. They get their own spaces while male only spaces are shut down. Then when it comes to higher education women get almost all scholarships even when they are 60% of college gradates. When it comes to job opportunities you have affirmative action, female only quotas and so on. Teachers 'give higher marks to girls' https://www.bbc.com/news/education-31751672 https://www.bbc.com/news/education-31751672 Research shows that teachers punish boys more harshly than girls for the same standard of misbehaviour. https://www.seattletimes.com/education-lab/same-behavior-problems-hinder-boys-more-than-girls/ https://www.seattletimes.com/education-lab/same-behavior-pro... The calculated grading system being used for this year's Leaving Certificate has been designed to ensure that overall girls will do better than boys https://www.independent.ie/irish-news/education/girls-to-do-better-than-boys-in-calculated-grade-leaving-cert-exams-as-gender-trends-will-be-built-into-results-39454619.html https://www.independent.ie/irish-news/education/girls-to-do-... 92 percent of sex-specific scholarships are reserved for women, study finds https://www.saveservices.org/2019/05/pr-widespread-sex-discrimination-found-in-college-scholarship-programs/ https://www.saveservices.org/2019/05/pr-widespread-sex-discr... Women receive full letter grade higher marks for similar essay compared to men. https://phys.org/news/2020-05-women-told-white-lies-men.html https://phys.org/news/2020-05-women-told-white-lies-men.html

maxdo 6y ago

I have the same example with female based products( beauty). Two guys in the meeting room were question... why this business? Every second investor. But yeah, that's not a popular topic :)

crowf 6y ago
To bad I can't read anything directly from them. After a quick Google search 2 top women's fashion companies, Calvin Klein and Gucci, were both founded by men.
rmak 6y ago
Now do boys and female teachers. See nobody thinks it is sexists to have almost all your elementary teachers female. Female Teachers Give Male Pupils Lower Marks, Claims Study https://www.huffingtonpost.co.uk/2012/02/16/female-teachers-give-male_n_1281236.html https://www.huffingtonpost.co.uk/2012/02/16/female-teachers-...

david38 6y ago

At what point would you say women control enough money to fund enough companies for this to not be much of an issue? Say you have $1B in VC money provided by women and their male allies. How many companies can that fund? How much press can that get? Over a few years, with new rounds being raised every year, will attitudes change? With this press, is there a subset of female C levels and directors that want to work for a female CEO? I am pretty sure there is. Can this lead to companies that are female majority C-suite? For sure. Sure, you might start in more traditional female markets, making products targeting women, but it would spread. The real win will be when there is enough cooperation to pull this off. Women control a MASSIVE amount of money in the US. A few billion is peanuts. How hard can this be to put together?