Innovation Blog

Gender Gap Inhibits Startups and Hampers Investors

MassChallenge Switzerland acts to reduce biases and narrow the gap from 2023

Investors’ choices, when biased, can cost companies time and money, and delay innovation—yet the biases persist. Raising awareness of it means bringing the gender gap to light in language investors understand: Objective data.

According to recent reports, startups led by women receive less than 3% of total funding. Already in 2018, MassChallenge teamed up with Boston Consulting Group to determine why women are still being left out of the startup equation—and how to remedy that disparity.The study found startups led by women are a profitable investment. In the United States, the average investment in women-led companies was USD 935,000 as opposed to USD 2.1 million for those founded by men. Mixed-gender entrepreneur teams received USD 23 billion in funding in 2020, compared to USD 3.3 billion for female-only entrepreneurial endeavors.

“The gender gap is particularly wide in startups. Perhaps as a reflection of higher percentage of masculine founders,” notices Caroline Iwers Prahl, CEO, Climate Action—an organization that supports farmers in tackling global warming that worked with MassChallenge Switzerland in 2022. “Society still has not fully understood the enormous power generated from the synergy of having a mixed team.”

That power deeply concerns—but is not only limited to—how effectively companies turn one USD of investment into one USD of revenue. Startups founded and co-founded by women were found to be significantly better financial investments. For every dollar of funding, these startups generated 78 cents, while male-founded startups generated less than half that—just 31 cents. 

MassChallenge Switzerland spoke with women founders, innovators, and VCs, to identify and address the many factors that impact how and why women entrepreneurs are overlooked by investors, ranging from unconscious gender bias to confidence gap.

Ignoring what’s in plain sight

Starting with the fact that investors are mostly male—and while they consciously try to avoid inappropriate behavior, they often have unconscious biases. While they genuinely aim to diversify their portfolios and think they make their decisions based on projections and profitability calculations, they are often driven by societal and gender norms. For instance, investors tend to ask different questions to female founders, often judged based on their results, while men are primarily judged for their potential.

Manuel Eppert, Managing Partner and Owner, Alvicus AG, was recently surprised by a question posed to him by a male investor. The investor asked if he should bother to invest in a pregnant woman. While Eppert knew such biases existed, he was dismayed to hear such a question head-on: “It’s disappointing that in our day and age, such questions are even posed,” he says.

Networking is another area where unconscious biases come into play, and male decision-makers appear to prefer male contacts when they’re making a third-party referral, especially in sectors that are dominated by men. In these sectors, male founders are sometimes viewed as more knowledgeable, and the same holds for those on a mixed-gender team.

“At LAM’ON we are two women and one man as founders,” recounts Gergana Stancheva, Co-founder, LAM’ON. “As we are working in the sector of polymers and manufacturing — both dominated by men — it happens sometimes for people to treat him as the one who knows more. It is not the norm however, and during our conversations the perception usually shifts.”

“In my experience, gender bias is a reality, but not an impossibility,” insists Iwers Prahl. “We can overcome gender bias, both by being more proactively inclusive and increasing awareness, and also by being an example of what a woman can deliver in terms of performance and results in the business world.”

The Devil Within

Gender bias is not limited to men. Women have their own unconscious biases that can sabotage their careers. Confidence gaps and imposter syndrome can dampen a woman’s drive; According to The Alison Rose Review of Female Entrepreneurship, only 39% of women are confident in their capabilities to start a business, compared to 55% of men. A lack of confidence impacts every aspect of the funding process, from the initial pitching and presentation stages straight through to financial negotiations.

“I think the gap between men and women when it comes to entrepreneurship starts at school and university,” believes Stancheva. “Women are not pushed to take risks and think about being founders or take lead positions as often. That results in fewer of us having the confidence to start our own business and then develop it.”

Creating alliances with male colleagues can be a way around these gender biases. Some female founders, like Iwers Prahl, count their male co-founders are their biggest allies, and count on them to foster inclusivity to their fellow men.

But it is also important for women entrepreneurs to create their own networks and join the networks available to them. MassChallenge Switzerland is helping them do just that by exposing them to the experience of more female leaders in different fields. This sharing can help generate a feeling of trust and confidence, which is essential if they are to leverage their network.

“Discussing with our alumni, we found that offering female founders a safe environment in which to share uncomfortable personal experiences is critical to generating a sense of belonging and increasing their confidence to overcome some forms of gender discrimination more quickly”, explains Giorgia Scetta, Materials Science & Accelerator Partner Manager at MassChallenge Switzerland.

Cait Reimers Brumme, Chief Executive Officer | MassChallenge Inc

“The biggest investment in anyone’s life is networking,” agrees Sumaiyah Mousinin, Co-founder of Deshifarmer, which works to link farmers to markets with the help data and technology.  “MassChallenge exposed me to a wonderful cross-border mentor network that is actively helping me even a year after the program finished. Such exposure is priceless for a female entrepreneur.”

The Numbers Game

Another of the obstacles for women seeking funding is the sheer lack of representation of women in venture capital firms. Women make up just 12% of VC decision-makers, even though this number is slowly growing; the need for more women in the investor pool, to match the numbers of female founders at the very least, is clear. When there is indeed more female representation, funding for women-led startups has been shown to increase. In fact, although this can come with a cost, women VCs invest in twice as many female-founded startups as their male counterparts at the earliest stage of company development. 

Investor teams with more women also rate higher in collective intelligence, which leads to better innovation potential. All-male investor groups can miss out opportunities due to a difference in their personal history and a sheer neglect of knowledge about the female experience.

“Men and women think differently, have different interests and act differently,” states alumna Joanna Ledunger, CEO and Founder, HEALTHY-LONGER GmbH. “Not having women among investors, juries and awards committees means favoring men’s interests, habits and ways of thinking when encouraging ideas and innovation.”

The MassChallenge Switzerland Accelerator

Gender biases in business historically run very deep, but at MassChallenge Switzerland we believe in forging ahead. Rather than wait for social biases to lessen and influence the business world, we are setting targets designed to push the needle forward.   

Our accelerator has set several targets to counter these issues by supporting women entrepreneurs and encouraging female founders to apply to our programs. Starting from 2023 we are trying to:

  • establish 100% parity in judging panels;
  • recruit more women in STEM as judges*;
  • reinforce the gender-safe space with experienced female founders offering feedback;
  • build focused content in our curriculum aimed to boost trust and self-confidence.

“Gender diversity and parity during start-ups judging panels are critical, to ensure that no bias prevents a great innovation from emerging,” says Matt Lashmar, Managing Director, MassChallenge Switzerland. “Continuing education on topics like avoiding biases with investors and other useful areas can serve to dissuade behaviors and decisions associated with the gender gap.”

Without funding, a startup—no matter how brilliant its innovation or USP— has no future. But with greater gender diversity and parity for women in startups, the future looks bright. As investors look for the next big thing, including 50% of the population in their search by considering female-founded startups boosts their chances significantly. That’s why MassChallenge will continue its work to close the funding gap, tackle gender-based financing disparities and give women-led startups the best possible chance of success. 

*Join our Experts Community by registering here (select MassChallenge Switzerland as your Home Community)

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