After the social justice movements of 2021, many companies and investors took stock of their processes for evaluating and investing in underrepresented founders.
While this re-evaluation may have led to 158% more meetings for all-female teams with minority members, according to DocSend’s new 2023 Funding Divide report, those meetings didn’t necessarily lead to more funding.
Then, as the market cooled in 2022, the meeting frequency dropped back down—all-female teams with minority members saw the biggest year-over-year drop in investor meetings (51%) last year compared to every other group.
For all-female teams with minority members, it seems we’re back to square one.
So why didn’t more meetings translate to more funding?
When VCs expressed interest in meeting with more underrepresented founders in 2021, those founders did what most founders would do: They took the meetings with high hopes.
I’ve personally experienced this trend. Well-intentioned VCs and non-VC ecosystem colleagues assumed I would benefit from the connections they could make for me. But the thing is, those connections weren’t always with VCs whose funding thesis matched my company.
When I raised my first pre-seed round, I met with a lot of investors who loved my background and deep experience but who didn’t focus on my funding round or technology solution. I think there are two sides to this coin. While the founder has a responsibility to do their research on which firms are the best fit for their solution, there’s also a responsibility for venture firms to make their investment thesis specific and public. And if a firm says “no” to a founder, their investment thesis should reflect “why” so that other founders can save time—especially minority founders who will, according to the data, have to spend 25% more time for half the investment.
But what’s more unfortunate is that underrepresented founders can do all the research and preparation in the world and still struggle to get funding. This comes down to what I call the “scrutiny tax.”
Underrepresented founders pay a scrutiny tax their white male counterparts don’t pay
I’ve talked to my male counterparts, and they’ll give me well-intentioned counsel and advice. They’ll say, “Here are the things I did to prepare for my meetings, and I got this much in funding.” I’ll prepare the way they did and see more scrutiny from investors
White males make up X% of all VC and thus White male founders feel familiar and safe. Investors have to move fast and thus need to quickly believe supporting evidence that they’ve verified with qualifying questions, then rush to invest so they don’t lose out on the opportunity. The scrutiny tax can act as an additional blocker for this same speed to investment for Minority founders.
To be clear, it’s not wrong to ask qualifying questions. But I remember seeing a female founder’s data room and have been surprised at the information she’s made public for VCs evaluating her early stage start up. There’s how much she gets paid down to the cent, her financials going back three years, every single contract a customer has signed. “If I want to raise money,” the common response from minority founders goes, “this is what I expect to need.” Whereas I’ve spoken to male founders who held that data close to the chest.
Outside of the obvious layer of implied ‘distrust’ the female founder has to navigate, it’s also made me wonder: What’s the extra layer of overhead involved in gathering and sharing this kind of information? How does that overhead take away from other activities the founder could be spending on growing the company?
The scrutiny tax holds up when you apply 2022 data to it. According to DocSend’s 2023 Funding Divide report, VCs spend 125% more time on all-female team sections, but a lot more time on the product section for all-male teams. Likewise, all-female traction sections receive 50% more scrutiny than all-male traction sections.
Remember that all-female teams are the only demographic to average under a million dollars per raise—so all this extra scrutiny isn’t translating to more money. If anything, we’re seeing unconscious bias in action as VCs do much more due diligence on all-female ‘team’ and ‘traction’ slides as compared to all-male teams.
Overcoming unconscious bias takes intentionality
Everyone has unconscious bias, naturally you can’t remove it. It takes a lot more work to compensate for that unconscious bias than it does to make quick decisions based on what feels familiar.
Considering the sheer volume of decks VCs look at every week, I’m not surprised the scrutiny data lands the way it does. Compensating for unconscious bias from a process takes time, self-awareness, and intention, while the name of the game is speed.
And it doesn’t work if there’s only one person at any given firm making an effort—everyone at a firm, at every level, needs to be invested in that intention. If that intention is surface-level —well, the ROI in turn will be the same. The returns will also be surface-level.
But if the intention is authentic, the results will be authentic. It may take more time or cost more or require more deep work for the team, but the rewards will be greater.
Learn more about the funding discrepancies that still exist in 2023: Download the 2023 Funding Divide report.