It's a well known fact that venture capitalists invest more more in male-led companies than female-led ones. According to Fortune,

"Venture capitalists invested $58.2 billion in companies with all-male founders in 2016. Meanwhile, women received just $1.46 billion in VC money last year...the massive disparity is due both to the differences in the number of deals and the average deal size by gender."

The disparity seems almost insane when you consider that women in business are, on average, smarter than men, female managers consistently outperform men, and as managers and coaches, and women make better decisions than men when under stress.

So why the continued (and worsening) disparity?

The "mansplaining" reasons are: 1) women tend to seek smaller investments, 2) women seek funding less frequently, and 3) women tend to pitch low growth "lifestyle" businesses.

However, the evidence behind the "mansplanations" is anecdotal and, even if true, smacks of self-fulfilling prophesy. After all, why should women pitch big or pitch tech when they know they won't be taken seriously?

By contrast, the "womansplaining" (if that's a thing) reason for the disparity that VC is an old boy's club that's hostile to women, as evidenced by, for instance, the recent resignation of Binary Capital co-founder Justin Caldbeck in the wake sexual harassment accusations.

However, while female entrepreneurs obviously face unique challenges, female VCs are just as biased toward funding male-led companies as their male counterparts.

Researchers from Columbia University and the University of Pennsylvania who recently monitored the TechCrunch Disrupt pitch competition (where Dropbox, Fitbit and Mint got their startup funding) discovered that:

"Through an analysis of the interactions between venture capitalists and entrepreneurs at these events, the study reveals that, yes, a kind of bias comes into play in the extreme funding disparity between male and female entrepreneurs. But it is 'one that is far more deeply ingrained and insidious than direct and explicit' and, in fact, is essentially unconscious. Moreover, far from being exclusive to men, it prevails equally among male and female venture capitalists." (Emphasis mine.)

According to the study (which will shortly be presented at the annual meeting of the Academy of Management) unconscious bias reveals itself in the type of questions that VCs ask when quizzing entrepreneurs on their business ideas.

With male entrepreneurs, VCs tend to ask questions about the potential for gain (like 'What is your aspiration?') but with female entrepreneurs they tend focus on the potential for loss ('How will you prevent defections?'). As the co-authors of the study explain:

"Female entrepreneurs are implicitly expected to prove that they can execute a safe return for the investor, whereas male entrepreneurs are instead expected to show the opportunity can grow...Entrepreneurs intuitively match their responses to the regulatory focus of the investor questions asked of them...prompting female respondents to position their startups as 'playing not to lose' and male respondents to position themselves as 'playing to win.'"

Fortunately, the study also discovered that there's way for female entrepreneurs to correct for these biased questions: answer "playing not to lose" questions in terms of "playing to win."

For example, suppose you're a female entrepreneur who's pitched a tech idea and the first question is something like: "How do you plan to compete in a crowded market?"

Rather than answer that question (which will only reinforces the "playing not to lose" stereotype bias), you answer the corresponding "playing to win" question. Here's one way to do that segue:

  • VC: "How do you plan to compete in a crowded market?"
  • You: "The real question, I think, is 'How much faster than the market can we grow?' Our unique approach will outperform the established players by 300% in the first two years."

To test this technique, the researchers played audio tapes of Q&As similar to those at the pitch competition for VCs, who then were asked to allot hypothetical dollars to what they'd heard. The results were frankly spectacular:

"When entrepreneurs were asked prevention-focused questions but provided promotion-focused answers, angel investors allocated them an average of $81,113, which was 1.55 times the allocation of $52,369 when prevention questions were followed by prevention answers. Among seed investors the differential was even more dramatic - $96,321 to $55,377."

This technique--redirecting attention from managing downside risk to creating upside potential--could be useful to women in other areas of business as well. It won't get rid of the institutional and unconscious biases, but it might render them less toxic.