You can say "penis" at a VC pitch, but don't even think about saying "vagina." Female founders are "advised" to strike a more "neutral" tone, according to startling new research.
Thanks for writing this Sergei, I feel like I saw a good, thorough summary of my 10 years as a female founder/CEO of a femtech company. 😂
Something I’d be curious about, though don’t know if the data is already out there or how hard it’d be to triangulate, is how many companies are funded where the entrepreneur was in VC before or has a partner/spouse in VC. And also how many companies/what portion of funding goes to second-time entrepreneurs. Basically, what portion of funding goes to founders with some sort of preexisting relationship. I’d bet it’s pretty common across all sectors, but I definitely saw this trend in femtech.
One of the things that is still striking to me during my Lioness days was several years ago when I went to a VC-hosted dinner of femtech female founders and nearly everyone there had been in VC before starting their company or had a spouse in VC (James wasn’t a VC yet, lol). It was a bit of a relief because I was really down on myself over how hard it was to fundraise and it felt like it was a nepotism game, but also it felt more and more frustrating because… it felt like a nepotism game. I think this has gotten better in the last few years, especially with more interest in women’s health and some success stories, but it’s still really tough to navigate as you’ve written about.
You’re absolutely right. The network effect remains crucial in securing VC funding, even in femtech. However, some research suggests that when an innovation is genuinely groundbreaking (and not just another “AI tourist” clone), VCs may actually consider merit more heavily. Take Flo Health, for instance - founded by two men in a Belarus' basement with zero connections, zero entrepreneurial experience, and limited English.
I found the following research that supports the impact of the network effect and highlights the disadvantages faced by first-time founders in securing VC funding.
1. Shane, S., & Cable, D. (2002). Network Ties, Reputation, and the Financing of New Ventures. Management Science, 48(3), 364-381.
Preexisting relationships foster trust between founders and investors. This trust reduces information asymmetry, making VCs more comfortable with the risk associated with investing.
2. Hsu, D. H. (2004). What Do Entrepreneurs Pay for Venture Capital Affiliation? The Journal of Finance, 59(4), 1805-1844.
Founders with strong networks can access VCs that are otherwise difficult to approach, opening doors to exclusive funding opportunities.
3. Stuart, T. E., Hoang, H., & Hybels, R. C. (1999). Interorganizational Endorsements and the Performance of Entrepreneurial Ventures. Administrative Science Quarterly, 44(2), 315-349.
Among biotech firms, the social capital embedded in networks influences VCs' investment decisions, often favoring founders within their network due to perceived reliability.
4. Gompers, P., Kovner, A., Lerner, J., & Scharfstein, D. (2010). Performance Persistence in Entrepreneurship. Journal of Financial Economics, 96(1), 18-32.
Serial entrepreneurs have demonstrated their ability to build and grow businesses, which increases investor confidence and willingness to provide larger amounts of capital.
5. Hsu, D. H. (2007). Experienced Entrepreneurial Founders, Organizational Capital, and Venture Capital Funding. Research Policy, 36(5), 722-741.
With each funding round, founders expand their networks, gaining access to more investors and better funding terms due to established relationships.
6. Eesley, C., & Roberts, E. B. (2012). Are You Experienced or Are You Talented?: When Does Innate Talent versus Experience Explain Entrepreneurial Performance? Strategic Entrepreneurship Journal, 6(3), 207-219.
When the current market or technology is familiar, founder’s entrepreneurial experience dominates. However, when the venture context is unfamiliar, talent is more important.
7. Kenan Institute, “Frontiers of Entrepreneurship 2020 Trends Report,” (Jan. 2020), page 56.
Founders are 21% more likely to receive funding from investors of the same ethnicity.
8. As I discuss in my article, more recent studies indicate that women VCs are more inclined to invest in women founders. However, this influence currently doesn't make a dent, given that only about 10% of VC decision-makers are women.
From Liz, my wife:
Thanks for writing this Sergei, I feel like I saw a good, thorough summary of my 10 years as a female founder/CEO of a femtech company. 😂
Something I’d be curious about, though don’t know if the data is already out there or how hard it’d be to triangulate, is how many companies are funded where the entrepreneur was in VC before or has a partner/spouse in VC. And also how many companies/what portion of funding goes to second-time entrepreneurs. Basically, what portion of funding goes to founders with some sort of preexisting relationship. I’d bet it’s pretty common across all sectors, but I definitely saw this trend in femtech.
One of the things that is still striking to me during my Lioness days was several years ago when I went to a VC-hosted dinner of femtech female founders and nearly everyone there had been in VC before starting their company or had a spouse in VC (James wasn’t a VC yet, lol). It was a bit of a relief because I was really down on myself over how hard it was to fundraise and it felt like it was a nepotism game, but also it felt more and more frustrating because… it felt like a nepotism game. I think this has gotten better in the last few years, especially with more interest in women’s health and some success stories, but it’s still really tough to navigate as you’ve written about.
Thank you for your brilliant insights, Liz!
You’re absolutely right. The network effect remains crucial in securing VC funding, even in femtech. However, some research suggests that when an innovation is genuinely groundbreaking (and not just another “AI tourist” clone), VCs may actually consider merit more heavily. Take Flo Health, for instance - founded by two men in a Belarus' basement with zero connections, zero entrepreneurial experience, and limited English.
I found the following research that supports the impact of the network effect and highlights the disadvantages faced by first-time founders in securing VC funding.
1. Shane, S., & Cable, D. (2002). Network Ties, Reputation, and the Financing of New Ventures. Management Science, 48(3), 364-381.
Preexisting relationships foster trust between founders and investors. This trust reduces information asymmetry, making VCs more comfortable with the risk associated with investing.
2. Hsu, D. H. (2004). What Do Entrepreneurs Pay for Venture Capital Affiliation? The Journal of Finance, 59(4), 1805-1844.
Founders with strong networks can access VCs that are otherwise difficult to approach, opening doors to exclusive funding opportunities.
3. Stuart, T. E., Hoang, H., & Hybels, R. C. (1999). Interorganizational Endorsements and the Performance of Entrepreneurial Ventures. Administrative Science Quarterly, 44(2), 315-349.
Among biotech firms, the social capital embedded in networks influences VCs' investment decisions, often favoring founders within their network due to perceived reliability.
4. Gompers, P., Kovner, A., Lerner, J., & Scharfstein, D. (2010). Performance Persistence in Entrepreneurship. Journal of Financial Economics, 96(1), 18-32.
Serial entrepreneurs have demonstrated their ability to build and grow businesses, which increases investor confidence and willingness to provide larger amounts of capital.
5. Hsu, D. H. (2007). Experienced Entrepreneurial Founders, Organizational Capital, and Venture Capital Funding. Research Policy, 36(5), 722-741.
With each funding round, founders expand their networks, gaining access to more investors and better funding terms due to established relationships.
6. Eesley, C., & Roberts, E. B. (2012). Are You Experienced or Are You Talented?: When Does Innate Talent versus Experience Explain Entrepreneurial Performance? Strategic Entrepreneurship Journal, 6(3), 207-219.
When the current market or technology is familiar, founder’s entrepreneurial experience dominates. However, when the venture context is unfamiliar, talent is more important.
7. Kenan Institute, “Frontiers of Entrepreneurship 2020 Trends Report,” (Jan. 2020), page 56.
Founders are 21% more likely to receive funding from investors of the same ethnicity.
8. As I discuss in my article, more recent studies indicate that women VCs are more inclined to invest in women founders. However, this influence currently doesn't make a dent, given that only about 10% of VC decision-makers are women.
I hope this is helpful.
Too true here, with nothing but lip service towards improvement over the years…
A related post by Devansh on gender bias in NLP embeddings: https://substack.com/@chocolatemilkcultleader/note/c-75568095