White. Male. Privileged. Why Archetypical Founders Have an Easier Time Securing Capital

Julia de Groote / Pisitta Vongswasdi - December 16, 2024

It's a classic scene to anyone even slightly familiar with the entrepreneurial world: Three young people standing on the stage, enthusiastically pitching their new ideas to a group of venture capitalists. All are male and of European descent. Though these factors alone do not guarantee they will receive funding, they do noticeably increase these hopefuls’ chances over entrepreneurs of different backgrounds and with different attributes. 

Numerous analyses confirm that—on a systematic level—women entrepreneurs are at a disadvantage when seeking financial support. Their male equals, i.e., those of comparable academic and professional backgrounds, receive funding more often. 

But why?

Until now, the specifics behind this phenomenon have been unclear. But a new joint study from Assistant Professor Pisitta Vongswasdi, Assistant Professor Julia de Groote, and Janine Heinrich from WHU – Otto Beisheim School of Management and Jamie Ladge from Boston College has now analyzed it. The researchers conducted a series of comprehensive interviews with 30 female entrepreneurs active in Berlin’s start-up ecosystem, with the focus of their analysis on the diverse backgrounds of these women. And this is at stark contrast to most prior research, which often regarded women as a homogenous group with similar experiences. Women belonging to a minority group, by contrast, will face different challenges. 

As explored in their interviews, the researchers identified three primary obstacles that hindered female minority founders (FMFs) active in Berlin’s start-up ecosystem as they fought to get their ventures off the ground.

Obstacle 1: Lack of access to informal flows of information and networks

Exclusion from informal flows of information and networks within an entrepreneurial ecosystem can have effects that ripple out. The search for potential investors and accelerator or incubator programs (which can help them develop and scale their venture) will always be more fruitful when the right connections have already been established. Female minority founders are often left to their own devices in this regard.

Obstacle 2: “Prove it again” bias 

Interviewees were of the impression that their academic and professional experience did little to vouch for their abilities. There is an apparent need to continually prove themselves to potential investors (who more often than not were White men). Where male founders are judged based on their potential, (minority) women are judged based on demonstrated success. And during pitches, it was common for female minority founders to have their competence called into question, something that did not generally apply to their male counterparts. 

Obstacle 3: Diversity washing

Another major point of contention was the phenomenon of “diversity washing.” It’s not uncommon for key decisionmakers in an entrepreneurial ecosystem to advocate diversity, equity, and inclusion—something that, in theory, should be of great benefit to female minority founders. But, as one participant describes, these decisionmakers’ primary concern is the reputation of their organization. Though they might vocalize support for female founders of color as a show of their commitment to diversity, their words are rarely followed by concrete action.

“Optically, yes, we’re being seen. But in terms of getting funding and a seat at the table, we’re practically still nonexistent. And that’s what is so frustrating,” one participant in the study says. In the end, these symbolic gestures are of only marginal benefit to those founders and ultimately do little to change the status quo.

An unequal playing field

The diverse experiences these women have had in Berlin’s start-up ecosystem reflect the diversity of the group as a whole. One woman, for example, might benefit from the privilege that being of European descent affords her and yet still be held back by her gender or lower socioeconomic status. Those who more closely embody the profile of the scene’s archetypical entrepreneur—for example, those with the “right” diplomas and degrees or even just the “right” accent—will have an easier time currying favor among venture capitalists. By comparison, those who embody that profile the least will be at a sizeable disadvantage.

Notably, however, the diverse mix of attributes across the start-up ecosystem can paradoxically intensify or mitigate the disadvantages faced by minority founders of all kinds. For this reason, assuming an intersectional perspective is crucial. 

“We want to break down those barriers,” said another participant. “We want to put it to the investors: ‘Why do you only invest in people within your network when that network is already so small? Why limit yourselves so strongly? Change course and help a more diverse pool of founders.”

What future lies ahead for female minority founders? 

With all the obstacles blocking their path forward, many start-ups led by female minority founders fail before they ever truly get off the ground. And as they shutter their doors, the world misses out on innovative business models, economic value, and all the jobs that start-up would have generated.

The research team calls for the advancement of female minority founders. As they assert: What makes these entrepreneurs unique should not be seen as a hindrance, but rather as source of potential.

Female minority founders require development programs designed specifically for them, and they should be given equal access to accelerator programs. And in addition to the resources typically offered to all participants, these programs should incorporate ways for FMFs to overcome any potential identity conflicts. 

These trainings should not only be accessible to venture capitalists, bankers, and investors from diverse backgrounds, but actively involve them. By participating, these other groups will have the opportunity to work on dismantling their own potential prejudices and gain a deeper understanding of the unique challenges faced by FMFs compared to traditional entrepreneurs. Recognizing and adapting to these differences is crucial and can lead to significant benefits for everyone involved.  

Literature reference and methodology

For this study, the all-female research team led interviews with 30 female minority  founders who were or currently are active in Berlin’s entrepreneurial ecosystem.

The researchers limited themselves to female minority founders whose business models are comparable to those seen in Silicon Valley, considered the “gold standard.” The tech sector, in particular, upholds the archetype of the capitalist entrepreneur as the heroic Western male while marginalizing female minority founders.

- Vongswasdi, P./de Groote, J./Heinrich J./Ladge, J. (2024): Beyond the Prototype: Unpacking the Intersectional Identity and Image Work of Female Minority Founders in a Startup Context, in: Journal of Applied Psychology, Online First Publication, 8. August 2024.