Raising venture capital can be a difficult and frustrating experience. Even if you have a great business idea, pitching to important investors can be a stressful process. And if you are a female founder, it can be even more nerve-wracking. The data I covered in my previous article, 5 Actions for Female Founders When Raising Venture Capital, clearly showed that as a female founder, you are likely to receive less funding than male founders.
Discouraged yet? Don’t be! In this article, you’re going to learn exactly how to use this information to your advantage and maximize your chances of getting an investor!
The research of Columbia Business School’s Dana Kanze
Dana Kanze, PhD, is well known for her research in applying behavioural insights to entrepreneurship. More specifically, her work analyses gender inequality as it applies to startup funding. What I really enjoy about her research is that she digs deep into this issue and provides hard data where others simply have gut feelings. Her data is essential to understanding the different approaches investors take when interviewing male vs. female entrepreneurs.
What were the results of her research? In her work, We Ask Men to Win and Women Not to Lose, Dr. Kanze analyses the types of questions female vs. male founders are asked by investors. She states that it does not matter whether the investors are men or women; the pattern of questions remains the same. Women are more likely to receive prevention questions, while men are asked promotion questions?
Men are asked how their idea will conquer the world. Women are asked why their proposal won’t fail.
What this means is that men are given the chance to explain how their bright ideas will conquer the world, while female founders have to defend their position. Investors are basically asking female entrepreneurs why their business proposals won’t fail. I don’t know about you, but to me, this seems like a self-fulfilling prophecy.
How to recognize and use prevention questions to your advantage
I think that it is crucial to understand the difference between prevention and promotion questions so that you can recognize the type of questions you are receiving. This way you will know how to answer either type of question strategically.
A promotion question looks at your idea in a positive light. Basically, it’s probing you to explain the potential gains that your business will see if it is funded. If you are being asked this type of question, it is more than likely that the investors are on your side.
On the other hand, a prevention question looks at the negatives and forces you to prove yourself and your business. When investors ask this type of question they want you to explain how you will mitigate potential risks, and ultimately they want to know about potential losses.
Here’s an example of a promotion question:
Let me understand the milestones in your finances in more detail.
An example of a prevention question in the same area would be:
How well have you thought out your free cash flow projections for the next 18 months? Can they hold?
Once the prevention questions start rolling in, you will feel like you are in defensive mode. This can add extra stress since you must answer these questions strategically. But once you notice a pattern of prevention questions, you can turn the situation around and use it to your advantage. The best technique is to answer a potential investor’s concern with added promotional content.
For example, if you are asked by a potential investor, “So with competitor C from the US, how are you going to defend your market share in France?”, make sure you address the question with your unique position as well as your marketing and sales automation efforts. The key part of your answer is to add insights into the magnitude of your market. Talk about how fast it is growing and how well-positioned you are with your technology. In this case, you can even add more value by talking about how you will conquer new markets and outpace additional competitors because of your capacity Y in your startup team and business model.
Want to increase your chances in investor meetings as a female founder?
Actions steps you should take today:
- Practice investor meetings with critical people. Remember that practice makes perfect. The more you practice, the more confident you will be and this will be noticed by potential investors.
- Collect a list of typical prevention questions and discuss potential answers with your team. Be prepared to answer this type of question by referencing the information we covered in this article.
- Be aware of the question structure you are getting. Once you start getting questions from investors, learn to recognize if you are getting promotion or prevention questions. This way you will know how to steer the situation to your advantage.
- Get into negotiation training so that you will be more comfortable in this environment.
Still not feeling investor-ready?
In this article, we covered how it can be more difficult for female entrepreneurs to obtain funding from investors. Even though this sounds like bad news, your chances can be improved by using the strategies we covered in this article. If you want to be more confident and prepared for your investor meeting, the most important thing you can do is practice. The better prepared you are, the easier it will be to answer every type of question they throw your way.
Need help?
If you need additional help in preparing for your investor meeting, we are offering a number of services that might help you:
- You could start with one of our checklists for investor readiness.
- Our Raising Money from Investors course is also a great way to prepare for every step of the investor-readiness process. This way you can prevent yourself from making common mistakes that you might otherwise be unaware of.
Learn, prepare & and practice to get the funding you need to turn your dream into reality!