There are investor pitches that go well. There are the flat-out disasters. And then there are the ones "where two guys spend the whole time picking apart your business," says Lynn Loacker, who runs a series of boot camps for women entrepreneurs under the banner of Project W, and is a partner at the law firm Davis Wright Tremaine.
The outcome of that last scenario--which doesn't generally result in a check--is at least somewhat determined by an entrepreneur's gender, according to research from Columbia Business School's Dana Kanze that was recently published in Academy of Management Journal. By analyzing video of 189 pitch sessions at TechCrunch Disrupt, Kanze, along with co-authors Laura Huang, Mark A. Conley, and E. Tory Higgins, found that investors ask men different types of questions than they ask women. When men respond directly to the questions they're asked, they get to expound on their grand ambitions. When women respond directly to the questions they're asked, they seem cautious and conservative.
The result: Investors walk away telling themselves that women want to play it safe and men want to take over the world.
Kanze's advice to women entrepreneurs? Be less direct. (Seriously.)
Kanze and her team identify two types of questions: prevention and promotion. Generally, prevention questions ask how an entrepreneur will stop everything from going to hell in a handbasket, while promotion questions tend to focus on how great everything could be. "What's to stop another company from doing the same thing as yours?" is a common prevention question. "What are your milestones for the next two years, and how will you hit them?" is a common promotion question.
Women mostly get asked prevention questions, by a ratio of two to one. Men mostly get asked promotion questions--by the same ratio. It matters. For every additional prevention question an entrepreneur is asked, he or she can expect to raise $3.8 million less in aggregate funding, according to Kanze's findings. "When I saw this research, it just hit me how much of the investor conversation is focused on the risk in our business, with only a brief discussion of the opportunity," says Jenna Ryan, the founder and CEO of San Diego-based Uqora, which makes products to help prevent urinary tract infections. "I feel very confident in how we address risk and turn it into opportunity. But I started to revise what an investor conversation should look like."
Facing a barrage of prevention questions--or even just one--it's up to entrepreneurs to turn things around. The trick, says Kanze, is responding to a prevention question with a promotion answer. So, for example, if you're asked how many daily active users you have, take the opportunity to focus on your user acquisition strategy and how great it is.
Weirdly, investors don't seem to notice--or at least don't mind--when an entrepreneur dodges questions in this way. "When entrepreneurs engage in this type of switching, they get higher scores on confidence and likability and things like that," says Kanze. "The warmth scores were really high."
Jennifer Cosco, founder and CEO of visual search engine Envy, based in Carlsbad, California, says this research "was like a slap in the face." She finds it hard not to at least take a stab at answering the prevention question directly before pivoting to a promotion focus. "Honesty is important to me," she says. "I don't want to do the full politician spin."
There's a lesson here for any founder who feels on the defensive. If an entrepreneur does choose to directly address a prevention question, he or she should do it as Cosco does--at the beginning. Answering in a promotional way, then feeling guilty about not answering the question directly and ending on a prevention note, is "the kiss of death," says Kanze, because then the follow-up question is also going to have a prevention focus.
"You have to end on a promotion note," says Cosco. "Envy is a platform that could be a household name in five years. We are selling the dream."
Women founders own just 39 cents of equity for every dollar owned by male founders
Sources: Inc. and Fast Company's 2018 State of Women and Entrepreneurship survey; Elephant in the Valley survey.
Shape-Shifting When Pitching Investors
Any question an entrepreneur gets asked during an investor pitch can be placed into one of two categories: promotion questions and prevention questions.
Promotion questions ask about how great everything will be.
Prevention questions ask about how horrible everything will be -- and don't usually lead to funding.
Women entrepreneurs get asked a lot more prevention questions than men do. If this happens to you, your best bet is to answer as if you've been asked a promotion question. In other words, give a promotion answer to a prevention question. Here's what that can look like:
Promotion question: So, how do you think you're going to get at this market?
Prevention question: How do you plan to defend your market share, given how competitive the landscape is?
Promotion answer: We're playing in such a large and fast-growing market that it's bound to attract new entrants. We hope to gain increasing share in this attractive market by leveraging our startup's unique assets ...
Promotion question: How do you want to acquire customers?
Prevention question: What is your customer-retention strategy?
Promotion answer: We're improving our daily and monthly active user numbers each period for a net customer growth rate of x percent. We plan to accelerate this rate by promoting the following customer growth strategy ...
Promotion question: Are there any thoughts on scaling your sales process?
Prevention question: How long will it take you to break even?
Promotion answer: We're actually managing the business for aggressive top-line growth, with a good deal of sales momentum so far. Here's what our sales forecast looks like. Our goal is to expand our margins as we grow our top line throughout this forecast period ...
Promotion question: What does success look like?
Prevention question: What is your execution plan to prevent losses?
Promotion answer: Ideally, we will accomplish much more than that. We aspire to achieve the following vision for the business. So far, we have seen these indicators of progress toward our goals. Here are our plans for further expansion ...