Promotion vs Prevention Investor Questions

Do I have implicit bias?

On paper, things have never looked better for female entrepreneurs. In fact, more than 11 million U.S. firms are now owned by women, employing nearly 9 million people and generating $1.7 trillion in sales, according to 2017 data from the National Association of Women Business Owners. Yet, there is an enormous gender gap in venture capital funding in the United States. Female entrepreneurs receive only about 2% of all venture funding, despite owning 38% of the businesses in the country.

Most believed that this gap would narrow as more women become venture capitalists. However, over the past several years, the U.S. has seen an increase in the number of female venture capitalists (from 3% of all VCs in 2014 to an estimated 7% today), but the funding gap has only widened!

The fact that the gap has widened attracted my attention. Ad Astra — a San Diego based venture firm that focuses on investing in female founders and addressing their fundraising challenges, opened my eye recently when I attended their investors' workshop. I learned about how investors propose questions differently to men vs women; I also learned about how women entrepreneurs tend to not go as bold as men -but end up achieving the outcomes they have presented.

Regarding questions, there are two types: promotion questions and prevention questions.

Promotion questions elicit conversation around gains and growth; prevention questions drive a conversation around how founders may achieve results or look at potential losses. Every entrepreneur is asked promotion and prevention questions. Both types of questions are necessary. Research by a team out of Harvard, noted below in the pictorial with the types of questions, found that women get asked prevention questions ⅔ of the time and men get asked promotion questions ⅔ of the time. Founders that get more promotion questions realise more money.

During our day-long investment and pitch simulation with Ad Astra, I learned I asked quite a few prevention questions. All founders were female, so we could not corroborate the Harvard study, but I did learn how to recognize my question when it was prevention and turn it around to be promotion oriented. The feel of the conversation was actually different!

Regarding “boldness”, Women are more conservative and don’t overstate projections. When women pitch investors, they often pitch realistic numbers. But because the majority of pitches overstate and exaggerate projections, the women’s projections are often discounted. This then reduces interest by the investor set.

Being more realistic sounds great to me. I often am frustrated by the hockey stick projections that are so exaggerated. I’ve seen companies pitch that they’ll reach over $150M revenues by year 3 — when today they have none. Really?

Take away: think twice about the projections presented. Are they more realistic and, therefore, I shouldn’t discount them?