Promotion-focused Q&A can Neutralize Bias While Pitching Your Startup

Undoubtedly, 5 minutes fly by imperceptibly, a simple pitch, you have practiced it so many times, you can sing it in the shower. I sure have! You can probably also feel your heart beating faster and your hands shaking slightly; then you take a look at the faces of the investors when you are finally done. They seem to like it. However, when it gets to the Q&A, female founders are asked more prevention-focused questions from investors and thus, respond in the same fashion, leaving funding on the table and a less efficient fundraising journey. Flip the questions and the answers from preventing to promotion to get higher returns & close more deals, gender bias inhibits investors in capitalizing on the true opportunity of startup investing.

Promotion-focused questions are directly correlated to advancements, ideals, and achievements such as: “Describe how you will grow the ideal customer base of your startup?” Promotion-focused answers would be describing the ideal customer and the successful sales achieved from product-market fit. In contrast, prevention-focused questions are linked to risk, responsibility, security, and vigilance such as: “How long will it take your business to break even?” Promotion-focused answers would be to describe in detail all of the break-even analyses the team has conducted to forecast the inflection point to be at a certain time instead of focusing on the successful revenue streams being pursued to reach revenue targets in the next 1-2 years.

Women founders get asked twice as many prevention questions as their male counterparts. In ground-breaking research conducted by Dana Kanze, "We found that 67% of the questions posed to male entrepreneurs were promotion-oriented, while 66% of those posed to female entrepreneurs were prevention-oriented." Taking it one step further, the research team evaluated how much funding these startup founders received. This discrepancy has a direct correlation to fundraising success. "For every additional prevention question an entrepreneur is asked, he or she can expect to raise $3.8 million less in aggregate funding." It sure does matter

Generally, prevention questions ask how an entrepreneur will not allow a company to collapse, taking on the typical mentality of only 1 in 10 startup companies survive, while promotion questions tend to focus on the opportunity a startup company is solving for and the successes at hand and envisioned. A common prevention question is "How will you protect yourself from a downturn in your market or pressure from competitors?" while a common flipped promotion question is "What are your milestones for the next two years, and how will you hit them?".

Male and female investors both display bias, it's a human condition, indicating that the gender gap in startup funding cannot be completely solved by increasing the representation among investors, it needs to be systemically neutralized one investor meeting at a time by conscious investors, male and female, changing the way questions are asked of any founder and by aware entrepreneurs identifying the type of questions being asked and taking action on the type of answers given.

The big question is: How can we eliminate bias and fund more women-owned businesses?

Angel investors allocated 2 times more funding to entrepreneurs with promotion questions and answers, compared to those with prevention questions and answers. However, when entrepreneurs gave a promotion answer to a prevention question, they received 1.6 to 1.7 times more funding than those who gave a prevention answer to a prevention question. This suggests that entrepreneurs can avoid the disadvantages of prevention questions by answering them in a growth-oriented way. Implicit bias is when we have stereotypes or attitudes toward people without consciously realizing it. Therefore, by definition, implicit bias is a tricky thing to recognize and understand.

To help truly understand bias, implicit biases:

• Are attitudes or stereotypes that?unconsciously?affect our actions, decisions, and understanding.
• Can be positive?(a preference for something or someone)?or negative?(an aversion to or fear of something or someone).
• Are?different from known biases?that people may choose to conceal for social or political reasons. In fact, implicit biases often conflict with a person’s explicit and/or declared beliefs.
• Are?formed over a lifetime?as a result of exposure to direct and indirect messages. The media plays a large role in this formation process.
• Are?pervasive: everyone has them.
• Are?changeable, but research shows that this process takes time, intention, and training.

Why do we care that women get asked more prevention-oriented questions?

TechCrunch female entrepreneurs (from 2010 to 2016) raised $3.8 million less for every prevention question that they were asked. If entrepreneurs reframe their responses to prevention questions, they may be able to raise more funds. For investors, asking promotion-focused questions get better promotion-focused answers leading to more positive due diligence.?

The business case for using a promotion-focused Q&A system for startup pitches.

The business case for gender equality is compelling. It is also widely underutilized.?

• Return on Investment. Companies with gender-diverse boards generate a higher return on equity than those without
• Higher Share Price. Companies with gender-diverse boards outperform those with no women in terms of share price performance during times of volatility.
• Growth Rate. Investors in companies with strong gender diversity strategies receive excess returns at around a compound growth rate of 3.5%

By closing gender gaps, companies (or investors) can unlock opportunities for increased profit, growth, and innovation. One simple and effective way to accomplish this is for the Q&A between entrepreneurs and investors to be promotion-focused. Female founders typically get asked more prevention-focused answers leading to less money invested in higher-performing leaders. In addition, if female founders answer any question, either prevention- or promotion-focused questions with PROMOTION-focused answers, they receive more money and thus, a higher return on investment for the investors considering investing and the founder for growing and exiting their company.

Answering in a promotion-focused way, founders receive more funding

Angel investors allocated an average of $81,113 to startups in the?prevention question, promotion answer?condition — 1.6 times larger than the?$52,369 average allocated to those in the?prevention question, prevention answer?condition.

Similarly, ordinary investors gave an average of $96,321 to the?prevention question, promotion answer?condition —?1.7 times larger than the $55,377 average given to the?prevention question, prevention answer?condition.

• prevention question + promotion answer = $81,113
• prevention question + prevention answer?= $52,369
• prevention question + promotion answer?= $96,321

If entrepreneurs reframe their responses to prevention questions, they may be able to raise more funds.

Examples always help, promotion vs prevention questions

I find it very useful to always have a guide for transforming an investor meeting with a startup founder into positive and promotion-focused conversations about metrics, success, and challenges. This helps in also contributing to a positive due diligence journey with sharing of information in an easier, promotion-focused way. An investor still has a duty to identify, and discuss the inherent risks of a particular investment, while also discussing how the founder mitigates that risk.

In the typical 5 focus areas of an investor meeting, here are some examples of promotion-focused questions you, as an investor, can ask (and founders, be aware if investors during meetings are asking you these types of questions - building awareness of the type of questions allows for you to turn them around is they are prevention-focused and keep on answering in promotion-focused ways if they align to promotion-focused questions):

Solution or Product-Market Fit?

• What functional limitations do you see for your platform?
• Would you be able to expand faster with the extra money?
• Why is now the right time for your startup?
• What are a couple of factors that could attribute to your continued growth?

Traction?

• What is the need in your industry that your product is filling?
• How do you know that customers love the product?
• What is the feedback from strategic partners?
• What's your most significant traction? Why? instead of "What is your performance barrier and what bottlenecks?"

Team?

• What motivates you?
• How is the team growing culture?
• What is the vision of the company and the involvement of the exceptional team you have built? instead of "Are you fully committed to the project?

Sales?/ Attracting clients

• Tell us about the experiences of your first three clients
• How did you find your first client?
• Who will enjoy your product the most? instead of "How do you resolve the issue of user trust?"
• What is your strategic plan for growth in the next 6 mo to a year? instead of "What’s your plan B if sales channels are interrupted?"
• There are a lot of competitors on the market, how will you promote your application in the App Store? ?instead of "How do you protect your downside?"
• How do you intend to acquire customers? instead of "What does customer retention look like?"

Business Model?

• Can you go into further detail about the business model as it pertains to your ideal customer? Instead of "Is monetization working now?"
• What is the growth potential of the current business model? Instead of "How big can your company get?"
• Explain please your margins. Instead of "With such small margins, how will you reach your sales goals?"
• What does your revenue forecast look like? instead of "Are you operating at breakeven?"

How to close the gender gap in startup fundraising??

Neutralizing gender bias in the fundraising journey is key for fundraising success. This is also important for investors to gain the exposure to the RIGHT investments, the BEST founders & get high returns on investment and impact.

For investors, here are 3 ways to evolve towards promotion-focused actions:

1. Watch your questions. Ask questions to gain insight on a potential investment instead of patching gaps around risk. This is an easy way to evolve into promotion-focused processes and questions. Practice makes better!
2. Diverse set of pitch judges in a competition or in investor sourcing partners. Why? Affinity bias is a form of gender bias, it's all about patterns. People are unconsciously attracted to people who are like them, this includes differences in gender, race, beliefs or sexual orientation.
3. Awareness of implicit bias for investors. Reading this newsletter, reading about Kanze's work, or listening to her TEDx talk, will inspire investors to think and react.

For entrepreneurs, here are 3 ways to transform your funding journey towards being more promotion-focused :

1. Learn to recognize the TYPE of questions investors ask. Typically during investor meetings, entrepreneurs are more focused on the content of the answer, but if you train yourself to pause and define the type of question an investor is asking, promotion or prevention. It will make all of the difference
2. Categorize the questions. If you now have identified the type of question, categorize them into buckets of due diligence (the 5 M's: Market, Management (team), Momentum, Model, or Money) and reply in that same genre of the question, helping the investor check off their list of investor risks.
3. Flip it. Replying to prevention-focused questions with promotion-focused answers can help founders counter biased questions. When identifying prevention questions, switch your answers to promotional tone and content. If you’ve been facing prevention questions and you get this question, “How long will it take you to break even?”, don't answer with your plants to mitigate risk now to get to a break-even point, but instead respond in a more promotional way, like describing how you plan to monetize your idea and the positive signals you are receiving from ideal customers. The conversation will ten bend more towards a promotion-focused discussion about what those signals are and how to amplify them.

Entrepreneurs tend to respond in a style that matches the questions they are asked. A simple way to neutralize bias is to recognize types of questions and respond with promotion-focused answers, which, can equate to fundraising on average about $30K-$50K more for your startup. So, founders, know how to distinguish those types of questions and answer back confidently, with positive, uplifting, and "up and to the right" answers! For investors, you can have better founders to speak to, better due diligence meetings, and invest in better companies if you practice promotion-focused questions that will naturally, produce promotion-focused answers, garnering more return on impact & investment; and don't we all want that?

Cited References:

• https://gap.hks.harvard.edu/we-ask-men-win-and-women-not-lose-closing-gender-gap-startup-funding
• Kanze, Dana, et al. "We Ask Men to Win and Women Not to Lose: Closing the Gender Gap in Startup Funding." Academy of Management Journal, vol. 61, no. 2, 2018, pp. 586–614.
• https://www.leadershippsychologyinstitute.com/women-the-leadership-labyrinth-howard-vs-heidi/
• https://www.inc.com/magazine/201811/kimberly-weisul/how-female-founders-can-combat-bias-sexism-investors.html
• HBR, Male and Female Entrepreneurs get Asked Different Questions by VCs and it Affects how much funding they get: Dana Kanze, Laura Huang, Mark Conley E Tory Higgins
• https://www.gendereconomy.org/closing-gender-funding-gap/
• https://www.forbes.com/sites/jeffkauflin/2017/10/13/how-female-entrepreneurs-can-beat-investors-gender-bias/
• Investors Don't Ask Women Founders the Same Questions as Men. Here's Why That's a Problem |?Inc.com
• https://downloads.ctfassets.net/464qoxm6a7qi/wzv3Ib30qboso0eyp0Dfu/b64d1af9335a4546420ac277f49845d4/Flipping-the-Power-Dynamics-Village-Capital.pdf