A Wild and Crazy Solution to Underfunded Female Startups
It’s no secret that female-operated startups receive far less funding than those founded by men. The apparent reason is how humans form high trust relationships, like giving millions of dollars to strangers. Investors do this with people who are most like them along the lines of age, gender, class, and race.
It eliminates variables. It allows them to focus on more subtle signals of trust, literally on the signals of professionalism, commitment, etc., that matter the most to writing these extensive checks.
Look, sexism in funding is currently a given. It’s not going away any time soon. I’m suggesting that this is unlikely to solve itself if we just wait for male investors to change their minds. Or it might take decades since the men with money today don’t have much incentive to change unconscious bias in their heads. They have wives, friends, and plenty of investment options.
So, how do we accelerate change? How do different-looking founders get access to more experienced, well-connected funds?
I believe the best way to solve the funding gap from experienced, well-connected, and male-dominated firms is to use investment firms’ financial levers and incentive culture as the tool. I even feel this will be more effective than diversifying the GP ranks of key firms.
Here’s one idea of how to do this.
Why not set up new funds with explicit funding targets for women and minorities as either a % of annual deals or, even better, a % of fund assets? This has been an excerpt from Episode 63 of Startup Confidential. Subscribe here to get it first when it goes live tomorrow.