Village Capital’s Victoria Fram and Brittney Riley discuss a recent article on the startup gender gap, how to measure a “successful” startup, and the importance of self-awareness.

Victoria Fram (Managing Director, VilCap Investments, LLC): Another week, another post about the Gender Gap in Startup Funding.

Brittney Riley (VP, US Ventures at Village Capital): Yes…still far behind the number of weekly posts about startup unicorns, though. And we probably need to keep talking about it, since the stats say the gender gap is actually getting worse: women founders got just over 2% of venture capital funding in 2016, despite the fact that 40% of privately-held companies are run by women.

Victoria and Brittney discuss Dana Kanze’s interview on the gender gap (find it here)

VF: I liked this article, an interview with Columbia Business School PhD candidate Dana Kanze, because it asks questions about possible biases of female VC’s.

BR: Right. So, when people talk about the gender gap, they often talk about the “industry representation” problem — the fact that only 7% of VCs are women. Kanze is saying that fixing representation is important, but more female VCs in and of itself won’t necessarily solve the gender gap.

VF: Not if those female VCs bring some of the same behavioral biases to the table as male VCs. Kanze’s big insight is that investors, regardless of whether they are men or women, tend to ask gender-tinted questions of female founders. She uses the example of her own experience fundraising, where she was “asked to address anything that could potentially go wrong with the venture, while [her] male co-founder was asked to address the home run potential of our venture.” Her point: investors expect female founders to protect downside (“prevention focus”) while simultaneously expecting male founders to capitalize on upside (“promotion focus”). And it’s harder to get an investor excited about your company if you’re constantly playing defense.

BR: It’s discouraging to think about how deeply ingrained some of these unconscious biases are — not only men, but also women continue to hold women to different standards. But the encouraging thought is that if we as investors can identify these behavioral patterns, we can be more intentional about how we ask questions, and what we focus on in diligence. That could lead to better and more diverse outcomes.

VF: This “prevention focused vs promotion focused” vocabulary is really helpful — and founders should be fluent in both. In every Village Capital program we have an exercise where we ask founders to give themselves a “pre-mortem assessment” (“Looking back, five years from now, what are the main reasons my venture may have failed?”) Then we ask them to think about how to mitigate those risks to capitalize on as large an opportunity as they can project. The exercise starts with a “prevention focused” approach, which may come more naturally to female founders, but it moves on to encourage a “promotion focused” analysis.

Since our investment process relies on peer review — entrepreneurs in each program decide who receives investment — this framing may help govern some of the group’s unconscious bias: of the 30% of our portfolio that’s raised more than $1M to date, 60% of that group is female-founded.

BR: While we’re on the topic, let’s also be clear that just looking at how much a company has raised doesn’t always tell the whole story of venture success.

VF: Oh, sure. While I’d love to see more female founders getting the funding they deserve, I can think of more than a few examples of companies that have raised a lot of capital without business models and were thought to be tremendously successful… until they lost all their investors’ money. Raising just to raise is not the goal.

BR: Right. Appropriate capitalization is a worthy goal, though. This reminds me of what we’ve learned from early applications of our STAR (Startup Team Aptitude and Readiness) test, a new tool we developed to identify what makes a founder “strong” — traits like ambition, grit, persuasion, etc.We’ve seen that women founders outperformed male founders in 9 out of 10 measures of objective and subjective performance, and that women have a higher level of self-awareness — both positive and negative. The “subjective performance” lesson is key here: women outperformed men most in areas where founders set their own measurements or shared how they felt they were doing (subjectively).

What does this mean for investors? Instead of seeing a company’s latest seed round as an endorsement that they deserve to get another round of funding, investors should look more closely at things like how they’re performing against their own measurements. Perhaps it’s unsurprising that being self-aware about your own performance is an asset, whether you’re focused on raising $10M+ and going after growth, or whether you’re running a “lifestyle” business. But research shows that subjective performance is a much better indicator for success, especially when measuring areas of ambiguity — and there is not much more ambiguous than determining a startup’s success.

VF: And there are also more than just those two choices of “growth at all costs” or “lifestyle” — though sometimes it feels like women have to prove they’re going all in after the first, or they’re dismissed as being satisfied with the second. As an investor, I’d much rather back an ambitious founder with a rational business model who will raise the right amount to grow appropriately, over a founder who is motivated to raise first, figure it out later, and who will be more likely to collapse when the venture funding music stops.

BR: Getting back to Kanze’s article: if investors continue to bring their biases into work with them, we’ll continue getting suboptimal outcomes. I’m looking forward to reading Kanze’s full report, and continuing to follow the folks doing great research around women in entrepreneurship like Kathryn Finney and Kim Zeuli. Great chatting!

Victoria Fram is the Managing Director at VilCap Investments, LLC. Brittney Riley is VP of US Ventures at Village Capital. Village Capital finds, trains and invests in entrepreneurs solving real-world problems. Thanks also to Alex Quarles and Ben Wrobel for their thoughts in this conversation. Learn more on our website and read our insights on Medium.