A few days ago, I was invited by ImpactFest to join hundreds of impact makers and social enterprises in The Hague, Netherlands. I hosted multiple roundtables with Melisa Dicker, the Partnership Director at Rise & Lead Women. During our session, we discussed “Gender Bias in Startup Funding” — and how impact investors can attract more women founders.

We shared insights, experiences and we covered a lot of thought-provoking topics in our session. These included statistics on the gap in allocated funding between female and male entrepreneurs, why and how unconscious bias plays a role, implicit gender bias, benefits of funding women-owned businesses and how to deal with biases when looking for funding or to fund, women-owned businesses.

It was great to be joined by social impact investors, social enterprises, female founders and students who shared their experiences in seeking and giving funds. The impact investors have the desire to invest in women-owned businesses but have had difficulty attracting them through pitches and funding applications. In fact, one of the investors, a woman, felt the pain the most. Having money to invest but a lack of applications.

The majority of the impact investors who joined our session were genuinely looking for ways to attract more female founders and wanted to know what they can do to attract them. The female entrepreneurs wanted to know how to better prepare themselves to receive funding. Besides the tips that everyone shared, some trends continued to emerge. We believe that both female founders and investors need to pay more attention to these recurring trends if we want to see change.

Women founders are everywhere but to attract them, you need to use the right language and ask the right questions.

Pitchbook’s VC female founders’ dashboard shows that startups with at least one female founder only receives around 14% of all VC funding, while solely women-owned companies get less than 6%— and closing this gap has been a priority in recent times.

In fact, 35 VC’s in the Netherlands, recently came together to make declarations towards their commitment to close the gender funding gap under the name of #FundRight. This action was motivated by a 2017 Pitchbook study that shows that only 1.6% of female founders received funding from VC in the Netherlands. The move to close the gap by #FundRight is a step in the right direction, but the question is, what more can be done?

We know we all have unconscious biases, and at times that clouds our judgment. Decision-makers everywhere both inside of organizations and funding spaces of all sizes are prone to this problem. Becoming aware of this and taking steps to deal with these biases is the right step.

But here is the big news . . . . .  Investors are aware of the gap in the startup funding ecosystem – they know it’s unfair and unfavorable to women. They also know that businesses that have women founders or co-founders make better returns on their investments — and they are now desperately looking for ways to close the funding gap for their benefit and for society’s benefit. As a result, much current analysis of the economy focuses on the need to include more women in the entrepreneurial ecosystem to increase shared prosperity for society. In this context, the promotion of entrepreneurship and SMEs are moving up the Government policy agenda. However, if VC and Impact Funders are serious about attracting women founders, they need to do something different instead of maintaining the status quo.

Here are three practical things that impact investors and VCs can start doing right away:

1. Create awareness of implicit gender bias among the panel and board when reviewing pitches & funding applications.

Gender implicit bias is cited as a major cause of the VC funding gap.

Dana Kanze presented one of the best frames of reference, supported by research in her Ted Talk – I recommend watching this! She researched the questions asked by TechCrunch investors and downloaded the transcripts. She found that men were asked more promotion-focused questions and women more prevention-focused questions.

Investors considering female-founded businesses approached them from a “prevention focus”, which focuses on the potential for loss or failure); the unconscious bias of assuming a male founded company has greater potential for success.

Meanwhile, male founders were asked more “promotion-focused” questions which allows them to focus on the potential for success where female founders were positioned to focus on the negative ‘what-ifs’. The study found that founders who were asked promotion-focused questions raise more funds.

There’s also the fact that VC boardrooms are usually dominated by white men, whose limited perspectives don’t always allow them to see the potential in a woman’s – especially women of color.

Here is a real-world example. One of the case studies is about Rent the Runway, an online service that rents out designer dresses and accessories. When founders Jennifer Hyman and Jennifer Fleiss launched their business, VCs didn’t understand how the venture was going to make money, but today It’s a billion-dollar venture.

Recently a female-founder who had created a tech solution to make hair braiding faster. She went to VCs, but they couldn’t see the opportunity. Meanwhile, hair braiding is a massive business. The VCs did not understand the size of the market and passed on an opportunity, losing the billion-dollar market due to their bias.

2. Ensure all questions asked of startups during funding rounds are exactly, word for word, the same.

We advocate to ensure equal opportunity at every level of their organization if they want to deal with unconscious bias.

According to this study, women were asked preventive questions 66% of the time, and men received promotion-focused questions 67% of the time. Promotion focused questions are related to advancements, ideals, and achievements such as: “How do you plan to monetize your startup?” While prevention-focused are linked to responsibility, security, and vigilance such as: “How long will it take your business to break even?”

The investors that joined us at our session were not aware that there are differences in the questions they asked men and women but committed to being more observant during their next pitching rounds. One of the social impact investors committed to checking the language they use during the call for pitches to ensure that exclusive wording is not used.

Female founders were advised that when they encounter preventive-focused questions to flip it and give promotion-focused answers. Kane’s study discovered that female founders who switch the answers had a more significant chance of receiving funds – up to a 7% increase.

So, whether you are a founder or an investor if you spot potential preventive-focused questions directed only at women during a pitch, call it out and jump in to rephrase the question. Ensure that men and women are asked the same questions.

For female entrepreneurs, understand your market-size, anticipated market share, and gaps. Know your numbers, come prepared and be ready to flip questions from prevention-focused to promotion-focused answers.

3. Ensure the evaluation panel are diverse.

Studies found that both women VCs and male VCs exhibited similar behaviour at a pitching table – which means there’s no guarantee that removing affinity bias would work in favour of women. Affinity bias is a form of gender bias, where people are unconsciously attracted to people who are like them, this includes differences in gender, race, beliefs or sexual orientation.

When it comes to releasing hard-earned money, investors are always looking out for people who can increase their equity and not particularly people who are like them. If this theory is correct, it then means that the main problem still lies in the questions being asked and the answers that are being received.

In 2008, I started a restaurant and desperately needed financing. The restaurant business is capital intensive and also a high-risk activity. I needed an equivalent of $70,000 (€50,000) to complete the restaurant project. I had already started building with profit from my first business and financial support from my husband. I remember visiting four banks and being rejected four times. I was then introduced to a VC, who didn’t take me seriously. He invited me for a drink and never for a second asked any questions about my business project. I went back to the banks. Eventually, I went to a bank headed by a woman.

For the first time, someone was patient enough to listen to my story. She saw my passion and conviction. She listened to my strategy for fixing a significant gap in the restaurant business- she took my case to the board of directors. My loan application was approved.

I accepted it as a miracle, but I know miracles happen through people, in this case through that bold leader. I remain eternally grateful to her. Without that loan, I would not have been able to finish my restaurant, build two branches within 3 years, open 7 sales outlets and a bakery and support 57 families by way of employment. It started with a woman believing in me.

Here’s the fact.

There’s no shortage of female entrepreneurs both in retail, tech, food, and a variety of different industries. There is, however, a shortage of funding to turn women-owned businesses – which are often categorized as hobbies, micro-businesses or side-hustles – into medium and large-scale businesses, as we are not always taken seriously.

So, Impact funders and VCs have to do better if they are serious about attracting women to their ecosystem. They can partner with organisations like Rise & Lead Women, or one of our affiliated organisations, who can give you access to smart and confident women female entrepreneurs who are clear on the problem their business is solving but need funds to grow or scale.

The funding ecosystem is not equal, particularly where the evaluation panel isn’t diverse or has ‘token’ representation. VCs have to use their souls at the pitching table, as well as their minds, to see beyond words and look at the passion, understand the skills and value women bring to the table, ask better and more balanced questions. This is more likely to occur when the panel is diverse. Where different life experiences are represented.

The big question is: How can we eliminate bias and fund more women-owned businesses?

Everyone loses when women businesses are not funded. Half of the world’s potential is lost. Society loses, women struggle, inequality rises, and VCs lose. The global economy desperately needs the contribution of women. A recent report by the Boston Consulting Group estimates the global economy would increase by up to $5 trillion if VC funding was equally allocated. It’s plain bad economics not to invest in women.

To have a real chance at equity, we have to acknowledge biases. Awareness and understanding must occur before we proceed to address and actively work with biases. By creating awareness, investors can be more balanced in how they address and assess all founders about their business; female entrepreneurs can position themselves to promote their startup in the face of negative framing.

It’s time for impact funders and VC’s to start opening their minds to what is being offered by female founders. It’s time to get past these biases.

Like so many things in life, solving the gender funding gap isn’t going to be easy. One of the contributing factors to this challenge continues to be the visibility of women startups to investors. At Rise & Lead, we are launching a Female Founders Lab for our community to develop their pitching skills and network with investors. To learn more, contact us here.