08/24/2024 – 16:40
It is well known that it is much harder for pioneering companies led by women to attract investors. But a study by a Swiss university has brought a surprise: attractive female entrepreneurs have a 20% greater chance than their male counterparts. Research shows that female startup founders face a glaring disadvantage compared to their male counterparts when it comes to raising capital, says Professor Robert Schreiber of the University of St. Gallen in Switzerland, based on an objective study he conducted. One of the main reasons is that “almost 80% of those who invest in these pioneering companies are men,” both in the United States and in Europe.
“This naturally creates network effects, with male investors also tending to back founders of the same gender.” Ultimately, men get nearly 50 times more venture capital than their female counterparts in startups.
On the other hand, to the surprise of its authors, the study coordinated by Schreiber revealed that women have an advantage over investors: if they are attractive, they have a greater chance of being granted capital.
Female startup founders face tougher questioning
Christina Diem-Puello, president of the Association of German Women Entrepreneurs (VdU), knows from numerous conversations with female founders that female-led companies have more problems obtaining funding, “especially when it comes to larger amounts, as male teams raise on average almost nine times more than female teams.”
Due to this undeniable gender gap, female entrepreneurs are therefore at a disadvantage compared to the other sex. Diem-Puello is convinced that the composition of investment teams – which are usually exclusively male – definitely results in a disadvantage for female founders: “Subconscious biases also often play a role here, and they should not be underestimated.”
One indicator would be that “women are confronted by investors with different types of questions: 84% of female entrepreneurs tell me that they are questioned more critically than their male colleagues.”
Founder Friederike Kogelheide from Bochum had exactly this experience. With her startup Glim Skin, she launched an electronic cosmetic device that relies on the antimicrobial effect of cold plasma.
In the early stages of the company, it still had one man on the team. Although he was only responsible for marketing, “investors perceived him as the head of the startup and asked him directly about the technological details” – and not Kogelheide, who had developed the device.
She is no longer surprised to be evaluated differently than men, but urgently recommends that investors “focus on the product, not the presenter”.
After all, is beauty a document?
When it comes to financing, however, who presents the product can make a big difference to female entrepreneurs. This is what the study by the Global Center for Entrepreneurship and Innovation at the University of St. Gallen concluded. Its goal was to analyze how investors behave when the same business program is presented to them by two different women.
A real-life startup case was presented to 111 experienced male early-stage investors – business angels and venture capitalists – who had been founded three months before the study and had “created an algorithm, assisted by artificial intelligence, to recognize tumors in images”. For investors, this was a promising business idea.
In one case, the startup was presented by an attractive actress, in the other, by an unattractive one. The participants were asked to judge the competence of the founders. Only at the end were they asked how attractive they found the young entrepreneurs.
Revealing hormones
Scientific research has already shown that the release of the hormones cortisol (stress) and testosterone (sexual) intensifies risky behavior – which in this case could be reflected in a greater willingness to invest.
So, in the experiment in question, the levels of these two hormones were measured before and after the presentation. Robert Schreiber is keen to emphasize that this practice “was closely monitored by an ethics committee.”
He admits that the result was surprising, because, “contrary to our expectations, physical attractiveness had a positive effect”: “In fact, to the point that the attractive entrepreneur was 21% more likely to obtain investment, compared to the somewhat less attractive one.”
For Christina Diem-Puello, there were no major surprises, as “traditional roles will continue to have a strong influence in 2024 as well”. As a practical conclusion of their analysis, the authors argue that, in the future, investment teams should be mixed, in order to avoid distortions dictated by gender.
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