Evidence that investors penalize female founders for lack of industry fit | Hacker News Reader

Evidence that investors penalize female founders for lack of industry fit

advances.sciencemag.org

42 pointsMyHypatia49 comments

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.

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

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.

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.

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

You are arguing against a different idea than was presented.

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.

"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.

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!

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.

Assuming your investment strategy is copying what worked in the past.

This comment in and of itself is the same sexist nonsense that silently proliferates the problem. Saying that “well the world has these problems” and correlating it to “well the people facing the problems are just screwed” is disgusting. Also chalking up the entire role of a VC to capitalize for profit removes numerous secondary benefits of USING CAPITAL FOR GOOD. Check your biases before you post

Original poster of this comment chain discussed how investing in female founders can be profit maximizing. The parent of your comment pointed out how it might not be because external sexism poses challenges to female founders which makes them riskier than their male counterparts. I agree that one can (even should) invest for reasons other than strictly profit maximization, but if one invests for profit maximization (as was discussed by comment chain op) then sexism in the broader market definitely has an effect that cannot be discounted.

The comment I replied to said:

> If you can identify an overlooked segment of founders, you can invest in that group and get industry beating returns.

I described a way that might be false. I did not make any moral claim, and certainly don't think that "actual sexism should take place during funding."

Please be more thoughtful yourself.

I wasn’t suggesting that you did make a moral claim. Your comment didn’t really address the concern that sexism at large is effectively causing sexism in the VC industry.

If sexism towards female founders in the intended market is a major risk factor (I don’t believe it can be considered major, which is up for debate), then it’s a VCs opportunity to cut through to the core of what makes the _business_ and its _products_ viable... not simply to pass because the market won’t like a female founder as much as a male founder.

But then that’s what a VC should be doing anyway. So founder gender and any perception of market bias towards that should become an increasingly insignificant factor in the funding process.

So VCs aren't investing in women owned startups because sexism makes it harder for those businesses to succeed causing women owned startups to receive less in VC investments based on sexism? That's an apt validation of the study and I'm glad you agree.

To make it more concrete with one example: if you're a partner at a seed fund, you're partly betting on a founder's ability to raise funds downstream from A, B, ... round investors. If those investors are biased, it will make investments in female founders underperform male founders. Issues like this as well as the very long feedback cycle for VC is what makes change in the industry so hard.

So I would be more reluctant to put my money on female-led businesses. It seems the VC are doing well their jobs then.

What if non-sexist gender differences make it harder for them to succeed, like the higher likelihood to drop out to have children, and overall less pressure to succeed?

That sounds like a nice thing for you as a potential investor, but it's not very nice for the female founders.

But it is, because it means the market will correct the problem quickly - unless there is actually some differential outcome between genders.

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.

Yes, that's a entirely plausible and unfortunate outcome - in which case the market would not be able to correct it.

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/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.

If we look at just the period of time after the second world war, I think we've made incredible social progress against both sexism and racism. So I'm optimistic that right will prevail here.

Not fully utilizing a segment of the population due to discrimination is an inefficiency, and the free market will apply pressure to correct that. I don't think that's enough by itself, but it's nice to know we're rowing downstream.

Wasn't the story of the Nobel with Meitner, that they took her off the list to protect her from Nazis?

In any case, she was given the highest possible honor by having an element named after herself, Meitnerium. It's absurd that she keeps appearing on those lists of allegedly overlooked female scientists.

Sure, she may have had to fight for recognition, but that is not unique to female scientists. Einstein had to work in a patent office, for example.

Similar with the story of Bell - not sure what exactly happened, but in any case she is not the only scientists who didn't get credit for her work. It happens to men on a regular basis, too. The assumption that it happened because of her gender may simply be wrong. (Edit: in the meantime she received 2.3M GBP via the "Special Breakthrough Price in Physics" https://www.cam.ac.uk/stories/journeysofdiscovery-pulsars - as for the Nobel, they are a private organization, and it may be difficult to judge for outsiders what is the elementary work in a discovery. Maybe the people who designed the telescope are more deserving than the person who manned it, or whatever).

Sadly, there are few sources discussing why women were excluded from academia in former times. I suspect part of it was the church, another economic reasons as women had a high risk of dying from childbirth, making their education a risky investment. Even today, women work less on average over their lifetime compared to men, so investing in their education has lower returns.

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

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.

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.

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.

Not only was he not wrong, his solution even addresses disagreements about whether the gap still exists.

You say the remaining gap is a 'motherhood' gap. Someone else thinks its chauvinism. And someone else thinks it's feminist propaganda. And another thinks it's a Masonic scheme. It doesn't matter! The market will correct for whatever injustice might actually exist. But only if the law permits the market to enact a price for bigotry.

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.

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?

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'.

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 :)

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.

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-...

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.

People have put a dollar value on it. There are funds specifically for women because this is a documented real problem. It’s more than hurt feelings it’s inequity and discrimination.

It’s not “JuSt HUrT FeELiNgs”.

SMH

I'd scrutinize the study more before jumping to conclusions. for starters, there may be few actual women affected by it, as few female founders tackle "male dominated industries".

Another thing that stuck out to me immediately was the "venture quality" metric - apparently an evaluation by the Tech Crunch Disrupt competition? It seems possible that women got elevated scores there (as for example girls are known to get elevated grades in school), as no money is at stake for the judges, but the elevation bonus goes away once real investor money is at stake.

Other factors might play into it, too (just as with the gender pay gap, which is not at all what it seems), but it takes more time to parse the paper.

In any case, the suggestion to use the results to beat other investors by specializing in women seems sound. If you believe the study, why wouldn't you?

It's pretty well documented that women have difficulty accessing capital (and less women in VC). Nothing is ever non-nuance but here are a few high quality sources.

https://hbr.org/2020/01/how-the-vc-pitch-process-is-failing-...

https://news.crunchbase.com/news/special-report-eu-lags-behi...

It is hard to believe this when women are given female quotas and companies are forced to hire women.

Yes. Gender diversity is a goal. Therefore requires direct action. In the 1950’s schools were forced to let black kids in. If in n number of years we have a female dominated work environment and men only make up 10% of our leadership then let’s make a men’s movement.

So 10% is the magic number? Men falling behind in academia doesn't count yet? Once there are more than 10% women in IT and startups, we can officially stop the diversity movement?

I don't immediately trust such studies, which are created with ideological bias. Afaik even the famous "blind orchestra auditions" study has been debunked by now.

Most VC capital comparisons like that neglect that women tend to do startups in other industries than men. At least the one from the HN submission here tries to correct for that.

Theranos has shown that women can raise a lot of capital.

Edit: from the first link "VCs who are scouting for extreme outperformers may be underwhelmed by women’s more measured pitching style." - this could be a huge part of it, if women tend to do less ambitious startups. For example. The basic assumption that men and women do the same startups and the only difference is their gender is probably wrong.

Edit: the second article argues with the usual "only x% of vc partners are women" and neglects to mention that far less women try to do startups.

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