The overrepresentation of men in tech start-ups is affecting how investors view female founders. We explore how a lack of trust is obstructing opportunity and inhibiting investment.
Female founded start-ups in the information technology (IT) industry continue to receive less funding from investors. A recent study reveals there is a lack of trust from venture capitalists (VCs) when it comes to backing women in tech companies.
Sonja Sperber from the Department of Strategy and Innovation at the Vienna University of Economics and Business (WU) conducted in-depth research with co-author, Christian Linder, on gender bias in IT entrepreneurship and the overrepresentation of men in digital businesses.
Sperber’s study highlights the reason women are absent from the tech start-up landscape. It was discovered that despite attempts to address the issue through support programs or education for women, discrimination remained.
This is because the problem runs deeper regardless of education and experience, and female founders are denied the opportunity to prove themselves due to the subconscious bias that tech is a “man’s world.”
BREAKING DOWN BARRIERS
The systemic difficulties facing women can be traced back to the classroom with gender barriers and biases instilled at school age. The perception of female interest in science, technology, engineering, and mathematics (STEM) careers is taught by rarely mentioning or discussing pioneering women in technology, and male-dominated technology-related roles feed into the narrative.
Sperber mentions societal conventions in her study, as she goes on to say that investors see entrepreneurship as a masculine endeavor, and women do not fit into the expectations of how a male founder behaves.
“While female founders need to be as different as possible to stand out from the competition, the study suggests that being female already deviates too much from the normative standard,” she adds.
“The typical tech-savvy computer scientist is male, independent, socially awkward, unemotional, and rational with a soft spot for cutting edge technologies.”
Considering the number of IT start-ups, female participation remains low.
Female founded start-ups receive a poor amount of funding compared to their male counterparts. Gender bias surrounding tech start-ups means that men are more strongly associated with not only the tech industry but founding companies in general.
Female founders face an uphill battle in terms of funding, receiving significantly depleted levels of investment compared to male and while the gap in funding is not in dispute, it is the underlying causes that are coming under scrutiny.
The problem lies in the disconnect between entrepreneurship and industry support, not in education, skills, or drive.
“The entrenched stereotypes of what a tech founder should look like, e.g., a young, white male, has been a major obstacle which has yet to be overcome,” informs Sperber.
The stereotype fuels uncertainty when VCs are faced with a female founder, leading to a lack of trust. As a result, this creates interest in male founded tech start-ups, and an overrepresentation of men.
OPPORTUNITY KNOCKS AT EVERY MAN’S DOOR
One of the barriers that women face is opportunity at the behest of VCs. Despite possessing the same skill set, education and experience as men, female founders will be overlooked in favor of a male-dominated start-up.
It has been proven that women are missing the same opportunities as men: in 2021 female founders only secured two percent of VC funding in the US, and early-stage entrepreneurs receive an average of $1 million less in investments than their male counterparts.
However, women who paired with men in a start-up, did not encounter as much pushback when trying to capture funding.
Sperber’s research cites data from Crunchbase attesting to only 17 percent of IT start-up teams having female members, which drops to eight percent later in the business cycle. “Unicorn start-ups founded by women are rare, nearly all IT giants are founded by men,” she continues; this is evidenced by Twitter, Google, Facebook, Apple, and Uber’s male founders.
THE FUTURE OF FEMALE FOUNDERS
Female founded start-ups need opportunities to fulfil their potential, for example, start-ups founded or co-founded by women generate 10 percent more in cumulative revenue over five years, yet they receive less than half the average investment of men.
The lasting impact of COVID-19 is seen as a hindrance in the advancement of female-led and owned companies, but while there is an increase in women-focused business events, women are still facing barriers.
A solution suggested by the researchers is to identify a niche market in which women receive little or no representation, and work to establish an alternative stereotype to filter into the tech industry. The good news is, more female-focused investors are emerging to lift women-founded companies and level the playing field, although more investors with a gender-neutral lens are still needed.
COMMENT FROM RESEARCHER, SONJA SPERBER, WU
“In North America, a recent estimation of founders’ demographics concluded that among all founders currently employed, only 35.7 percent are women while the vast majority, at 64.3 percent, are men. Further, in terms of the founder’s ethnicity, 68.5 percent are white. This lion’s share is followed by 17.4 percent Hispanics/Latinos and 10.1 percent African Americans. What these figures once again outline, is what our recent study has identified as the major cause of error: in the past and still today, the majority of founders (especially in the IT sector) have been white men. While as a society, we vastly agree that inequality due to gender, race, etc. should be overcome, we yet carry the past into the future. This deadlocked situation has led to an antiquated prototype of the typical IT founder. In consequence, it is even more difficult to become a business founder as the audience (sponsors, investors, and clients) expects the characteristics of the prototypical founder – hence, female and other minority founders do not only have to fight for their target audience, funding, etc., but rather have to prove themselves despite being different from the prototype.”