Springboard to Funding #12 - Meatballs, Ikea and Venture Capital

Added Tuesday, August 14 2018

OK – so there’s a bit of a clue in the title. Yes I’m going to talk about Sweden, but you won’t know it’s really about gender stereotypes supported by some fascinating data from Sweden.

Research recently released by Luleå University of Technology and Hanken School of Economics gives a unique insight into the unintended bias of Venture Capitalists. And this in a country known for its equality and with strict laws to enforce this. It’s actually ranked number one in the EU Equality Index – who knew this existed?

Despite this, female-owned businesses only received 7% of government venture funding while representing over 30% of Swedish businesses. 

The methodology is interesting in itself. In the first part, 11 Swedish VCs who received government funding were interviewed. The balance of their applications for funding were roughly gender balanced but four gender-stereotypical notions emerged. These were behind major differences in how VCs evaluate a venture’s potential, based on the entrepreneur’s gender.

After that the actual performance of the companies invested was checked to see if in fact these stereotypes were borne out in practice.

So, first to the stereotypes. These were :

1. Women are cautious and risk-averse, whereas men are ambitious and risk-taking.
2. Women are reluctant to grow their businesses, whereas men are willing to do so.
3. Women do not have resources to engage in high growth, whereas men do.
4. Women’s ventures underperform, whereas men’s ventures perform well.

Pretty strong stuff I’m sure you’d agree when brutally summarised like this. And worse when you look at some of the quotes from the VCs :

“She is very cautious, as women often are, and she is careful in what she does, and she does not dare to invest.” 

“She is extremely cost aware — this is not how you grow a company.”

I can feel blood boiling amongst my readers here and not just amongst the female ones.

Then in the second part of the study, the actual performance of the companies was analysed against these four stereotypes.

To look at risk aversion they examined things like debt-to-equity ratios, mortgages, overdrafts and the like.

For reluctance to grow, the measures were turnover and employees both actual and their growth.

On growth resources they considered operating margin, the value of assets and shareholder contributions.

Finally, and most obviously, performance was measured by return on total capital, profit margin, turnover per employee and earnings before interest and tax or operating profit.

And guess what – there was effectively no difference between the male and female owned companies. Specifically the researchers said “In total, none of the beliefs VCs expressed about female versus male entrepreneurs could be backed up by data related to how ventures actually performed.”

Now you may be thinking that these are typical male bias or even discrimination towards women in an industry dominated by men. However these were actually subconscious biases which influenced men who believed they were making the best decisions for their investment business. 

Or to put it another way, they didn’t know they were doing it.

So if such unintended bias can be so ingrained in a progressive and egalitarian country like Sweden, what might it be like here in Northern Ireland? Of course we are too small to support a statistically sound study like this when we have four local VCs.

However, as a crude guide, we can take a look at the portfolios of our local VCs and other related organisations. Of the over 100 investments on their public websites, only 8 have a female founder. We can only speculate about what the reasons for this may be.

Finally, returning to Sweden, it’s interesting to note that the one of the most successful ventures ever was Abba. And their gender split was 50:50.

Alan Watts is the Director of Capital Match at Catalyst Inc (formerly the NI Science Park).
For more information about Capital Match or to contact Alan, go to capitalmatch.catalyst-inc.org