Handling preventative questions and addressing unconscious bias as a founder when fundraising is an art and a science. While every founder faces hurdles, women founders often have additional barriers to cross due to systemic biases in the industry, but also society more broadly. One specific issue that persists is the tendency for investors to ask preventative questions, focusing on potential losses instead of gains. This idea has been confirmed by a study led by Professor Laura Huang, former professor at Harvard, and published in the Harvard Business Review. It not only identified that men and women are asked different questions by VCs but that it also affects how much funding they receive.
In a recent discussion with Lauren Capelin, who works in Business Development for AWS Startups, she referred to Professor Huang's teachings on this subject - the mechanics of fundraising, due diligence, and navigating biases. Capelin, going beyond her role, also serves as an ambassador for the AWS Underrepresented Founder and Investor Startup Business Development (URF/I BD) Team, which was established in 2020 to further the company's dedicated efforts in accelerating startup businesses led by founders from traditionally underrepresented groups. The URF/I BD team executes a range of programs to support underrepresented founders, including Fundraising Lab, a 4-week program that covers everything from understanding cap tables to the 'Pitching Better: Navigating Fundraising Bias' workshop, a collaborative initiative between AWS and Professor Huang. Over the past year, this workshop has empowered more than 1,000 women founders, consistently earning positive reviews.
Within the context of this workshop, Capelin delved into Professor Huang's research findings and offered insights on handling tricky preventative questions, reading between the lines, and promoting your venture beyond the usual risk-averse inquiries. This workshop introduced a nuanced approach to the art of pitching.
This article aims to unpack how women, who are at the receiving end of preventative questions, receive less funding alongside other biases and what both founders and investors can do to bridge this gap, leaning on these women’s learnings
The Gender Gap: Stats and Stumbling Block
At Antler, we've observed that fundraising can become the full-time role of a startup CEO during an open round, requiring significant time and effort. This process is even more daunting for women founders due to the disproportionate amount of investor dollars that go to male-founded companies. Not to mention, they are more likely to be subjected to preventative questions than their male counterparts.
In her study, Huang identified a clear difference in the questions posed to male and female entrepreneurs. Men were more likely to be asked promotional questions focused on potential gains (eg. What is your monetisation strategy?) Contrastingly, women received preventative questions centred around potential losses. (eg. Why will people buy products from you versus your competitor?)
This disparity has had significant financial consequences: Startups asked primarily preventative questions raised five times less funding on average compared to those asked promotional questions.
Of course, as Capelin noted in her presentation on Huang’s study, "They’re not trying to set you up for failure, some investors are just inherently risk averse, and all of their questions will come from that perspective, regardless of gender."
However, the gender gap is particularly pertinent when 66% of the founders who identified as male were posed with these promotional-oriented questions, whereas 67% of the founders who identified as women were asked preventative questions. As a result, this slump in funding success is principally felt by women. In fact, according to Huang and her team, male-led startups in their sample raised five times more funding than female-led ones. Over the years, the funding gap has unfortunately continued to widen, not narrow.
The Q&A Trap: What Founders Should Know
A vital point for founders to understand about preventative versus promotional questions is that you're not just passive recipients of questions; you can actively guide the conversation. Huang’s study observed that 85% of entrepreneurs responded in a manner matching the orientation of the question asked. A preventative question led to a preventative answer, perpetuating the cycle of bias. Founders who broke this pattern by responding to preventative questions with promotional answers went on to raise an average of $7.9 million in total funding.
Expanding on this redirection of conversations, Capelin noted that when founders recognise the preventative orientation of the question and what is underlying that, reframing the question with what the investor is actually aiming to hear can immediately steer the conversation towards the more promotional and positive end of the spectrum.
Don't Avoid the Tough Questions
When raising, expect a rigorous due diligence process because you might be questioned about potential risks or drawbacks of investing in your business. However, use these preventative questions as a way to stress-test your own product assumptions and make your case stronger. Having a pre-prepared arsenal of preventative question-oriented answers or, better yet, answers that redirect the preventative question to the promotional side, will make your pitch come across clearly and confidently.
Capelin suggested creating a “quick email explainer that you can share pre-meeting walking through a deck in the meeting or even just following up with it after the meeting” so investors can connect the dots more while you pitch. Pre-preparing these materials will also build confidence in the investor making them more likely to avoid risk-averse preventative questions.
Capelin emphasised how the biases Huang studies can manifest in fundraising discussions. When investors are risk-averse, the questions might feel targeted or unbalanced. However, being prepared to answer from both a promotional and preventative perspective while redirecting the conversation towards the former can alleviate these biases and let your pitch shine.
“Don't just answer the question - use it to inform. Then, promote what really is important about your business. Have those three killer statements prepared so investors understand what makes you special, double down on the big potentials, and make sure that those things have numbers involved - that there's data behind them.” - Lauren Capelin
Feel Empowered, Not Overwhelmed
Finally, as Capelin pointed out, the fundraising journey won't be easy, but it should be empowering. Make sure you're well-prepared to handle any curveballs that come your way. If you’re able to notice when preventative questions are asked, such as “Why will people buy products from you versus your competitor?” and what their ulterior motive is, in this case, differentiation or competitive advantage, you can adjust the conversation promotionally, which in turn will make you feel in control throughout the remainder of the process.
“If you just zero in on your business and your customers, the numbers come, and the stories and attraction emerge from that, such that any question asked of an investor or by an investor is going to be a home run for you because you know what you're doing.” - Lauren Capelin
Investors, Take Note
The call for change isn’t solely for founders. Investors also play a pivotal role in shaping the equity landscape. Both male and female investors in VC exhibit the same biases when asking questions, meaning that simply increasing the number of women VCs won’t solve the problem. Taking the time to introspect and potentially adjust your own questioning framework will help close this funding gap. Being aware of this bias towards asking females and males preventative and promotional questions, respectively, can help investors reframe their questions in a balanced way, ultimately leading to more equitable and potentially more profitable investment decisions.
Antler founders get access to exclusive resources, fireside chats, and education on the startup journey alongside access to our global network of advisors, mentors, and investors. We are currently taking applications from individuals looking to find a team, launch a startup, or those seeking Pre-Seed investment. If you want to work with Antler apply now!