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Does gender matter to startup?

An interview with Claudia Schaller, Founder Institute, to take a closer look at the gender gap in founding.

In recent years, women have become more and more active in the professional world. In particular, women increasingly join the workforce in positions associated with high levels of education, value creation and responsibility such as lawyers and medical doctors. However, at least when it comes to starting a company, many more men than women take up the challenge. Claudia Schaller of the Founder Institute investigated the situation. Now, Claudia summarized her findings in a detailed and richly annotated publication. The following interview is based on Claudia’s article.

Why talk about gender?

Benjamin:
Claudia, you recently presented results of a study on female founding. Your study has the title “Founding is not (yet) female”. So what? Don’t we talk about business? Why should gender matter?

Claudia:
Upfront: I don’t like the adjectives “male” and “female”. They not only separate, they also limit. Gender is fluid and exists on a spectrum, in many cases even on a genetic level. For the simplicity of this necessary discussion though, I’ll stick to those buckets and terms. Usage of the “female” adjective is an even bigger annoyance to me; there’s no such thing as a “female Founder”, “female Architect” or “female Scientist”. It is simply “Founder”, “Architect”, “Scientist”.

Benjamin:
That is merely a grammatical convention, perhaps rooted in traditional role models. Sure enough, in today’s society these role models do not matter any more.

Claudia:
I disagree. The gender descriptive adjective strongly implies men are the norm, women are not. It distracts from the actual noun, indicative of what is truly important – her specific achievement and skill set. Unfortunately though, women aren’t the norm if it comes to founding a startup. Gender disparity in entrepreneurship is big.

Benjamin:
How come you can make such a statement?

Claudia:
Let’s back up a little bit. A few months ago, six amazing entrepreneurs graduated from the Founder Institute Munich. And while I am proud of each one of them, I am particularly proud of our four female Founders: Dr. Jutta Merschen (everday.io), Dr. Tina Ruseva (Mentessa), Andreea Octavia Stancu (HoneyJoy) and Beenish Waris (Connect Platform).

Benjamin:
You lost me. Could you please explain? What is the Founder Institute?

Claudia:
Founder Institute is a pre-seed startup accelerator founded in 2009 in Silicon Valley by Adeo Ressi. Infamous for being one of the toughest startup-building programs, its philosophy and curriculum has since spread around the globe, making Munich one out of 180 chapters worldwide. Founder Institute’s biggest differentiator is the close collaboration with experienced local CEOs as mentors who provide expertise and weave a supportive network lasting beyond graduation. The curriculum of the 14-week program, during which incorporation is a must, touches every important step of the business-building process; it is in-depth, hands-on, work-intensive, collaborative and fast-paced; just like the startup world. It’s designed to push participants to the limit, especially when juggling full-time jobs and families. No surprise, on average less than 30% make it through the program. However, graduated startups benefit from an 80% post-survival rate, compared to the regular 10% seen without. This makes Founder Institute a premier pre-seed accelerator with a current graduate portfolio value of $20 billion and more than $800 million raised from investors.

gender still matters

Benjamin:

The numbers suggest that founding is an activity which can be learnt, not so much in the abstract as by training. How does gender matter?

Claudia:
Internal data shows Founder Institute Munich has so far attracted only a small number of women. Since the accelerator’s establishment in Munich in 2013, only 22 women (18%) have been enrolled (versus 101 men). Seven of them made it to graduation (versus 23 men), four of them just in the last semester.

Benjamin:
Is the Munich data representative for all chapters of the Founder Institute?

Claudia:
Silicon Valley’s chapter shows a higher female participation rate where women make up 30% of enrollment. Dropout rates among women are overall lower; in Munich and Silicon Valley 32% of women made it to graduation (versus 23% of men). A handful cities like Oslo, Washington DC, Sacramento, New York City and Chicago lead the way with 50% of graduates being women.

Benjamin:
If the dropout rates among women are lower, then the Founder Institute must have an interest to recruit more of them. How did you achieve the extraordinary female to male ratio of 2:1 in the recent term?

Claudia:
I onboarded as first female Co-Director in Munich in 2018, sharing responsibilities with Nathan Evans and Robert Kitson. We Co-Directors recruit, guide, consult, connect, we hold hands and crack whips – we’re the face of the accelerator. So, was it a coincidence that the last semester started out with seven female versus eight male participants, a much better female to male ratio than ever seen before in Munich? Did it need a female Co-Director to attract more women into the accelerator? While I like to believe I made a difference, hard numbers convince me otherwise: economic opportunity in general, but especially in entrepreneurship, shows a huge and stagnant gender gap.

Benjamin:
A gender gap that runs contrary to your experience of the high success rate of women in your startup classes?

Claudia:
Yes. There is a global gender gap in economic opportunity closed by only 59%. According to the World Economic Forum’s Global Gender Gap Report 2018 many countries achieved milestones towards gender parity across education, health, economic and political systems, but there remains much to be done. Let’s go into the numbers in more detail: 149 countries were assessed with just 17 that currently have women as heads of state. Globally, women hold just 34% of managerial positions. Call yourself lucky if Western Europe is your home, the region with the highest level of overall gender parity (75.8% versus 68% globally). In the sector of economic participation and opportunity, only 59% of the gender gap globally is closed (see Figure 2). Germany holds rank 14 on the global index list (two ranks down since 2017), right before the US (rank 15). Iceland, Norway and Sweden head up the list; but don’t be fooled, those countries have closed their overall gender gap only by 85% or less. While Germany shows almost no disparity in the categories of health and educational attainment, economic participation and opportunity as well as political empowerment score fairly low.

Benjamin:
Isn’t there a deeply rooted biological bias at play? Women are more risk-adverse and therefore are more likely to shun the risks of entrepreneurship? In countries with a strong social security, risks of failure are mitigated. Therefore, the countries you mentioned – they are known to provide a lot of security – see a higher rate of female founders than other countries?

Claudia:
Wrong. Women and men have equal entrepreneurial spirit. But only 17% of startups have a female founder. Being aware of the overall existing gender disparity, it is no surprise that the startup world is a male-centric ecosystem. In Germany, only 15% of startups have a female Founder according to the European Startup Monitor. European average is 17%, a number matching with Crunchbase’s global analysis. Do women simply lack the so-called entrepreneurial spirit to begin with? Entrepreneurial spirit is defined by having a mindset of seeking change, taking a higher though calculated risk, being proactive, optimistic and passionate. According to a study published by Ipsos in 2018, 61% of women versus an almost equal 64% of men show an either very high or high entrepreneurial spirit. The desire to innovate and create a better tomorrow seems to have no gender bias.

Benjamin:
Is this because, in Germany, many seem to regard doing business, let alone founding a company, as a low thing to do, hardly a profession at all, since, for many people, it seems only to be about making money? Contrast this with being a teacher or a medical doctor. Women are more status-minded than men?

Claudia:
I don’t think that status is the issue. Rather, founding is generally difficult in Germany, and because of the gender gap it seems to be particularly difficult for women: The gender gap deepens from access to investment all the way up to the C-Suite. Once you have founded, you are on the trajectory of finding investors, scale, hire and further down the road, create a board. At all those stages women face disadvantages. Susan Lyne, a Co-Founder of BBG Ventures, believes that “the biggest issue is not the number of women starting companies, but the access to capital as you move up the food chain”. Female-led startups are 63% less likely than male-led startups to obtain venture capital as they move through seed, early and late-stage ventures, as recently published by Columbia Business School. In 2018, U.S. female-founded startups have raised just 2.2% of venture capital investment; and sadly, only 2% of unicorns were founded by a woman over the last decade. And if you think more mature startups would take the opportunity to hire female executives and board members, you’d be wrong. Data released by the Silicon Valley Bank in 2018 revealed that only 29% of tech and healthcare startups had a woman on their Board of Directors; a number that has risen to 37% in 2019, due the public awareness that was raised over this issue. In Germany, established corporations are currently the worst role model in terms of gender parity: only 8.5% of board members are women, prompting Chancellor Angela Merkel to consider introducing policies to address this imbalance. She clearly speaks how woman are actively denied access to leading positions (“Verweigerungshaltung”). And as of 2019, just 33 out of the Fortune500 companies had female CEOs, which is considered an all-time “high”.

Benjamin:
So you don’t think that we are on a good course to reduce the gender gap?

Claudia:
I am an eternal optimist, but according to the numbers released by World Economic Forum’s Global Gender Gap Report 2018, the future doesn’t look female. Projecting current trends, it will take 108 years to close the current economic gender gap globally. While the numbers for Western Europe look brighter (61 years), we start facing a new threat: the Economic World Forum warns about the possible emergence of new gender gaps in advanced technologies, such as with artificial intelligence-related skills.

Benjamin:
Sure enough, women are just as active in the field of AI as men, aren’t they?

Claudia:
Unfortunately, the figures contradict your assumption. In collaboration with LinkedIn, it was shown that only 22% of AI professionals globally are female, compared to 78% who are male. A gender gap which has remained constant over the last years. McKinsey’s recent report about the “Future of Women at Work”, points out as well the new challenges women face at the age of automation; globally, 40 million to 160 million women may need to transition between occupations by 2030, often into higher-skilled roles. If they make these transitions, women could find more productive, better paid work but if they don’t, they could face a growing wage gap or could be forced to leave the labor market entirely.

be more self-confident

Benjamin:

Let us try to get to the bottom of the gender gap. Is there a root cause? Recently, whilst cycling past a traffic jam, I did my personal gender gap study: In those cases where a car had a man and a woman in the front seats, I checked who sat in the driver’s seat. Less than one in twenty of these cars had a woman in the driver’s seat. Why? After all, women drive cars. In fact, many cars in the jam had a woman behind the steering wheel. Absent any man, these women seemed to be perfectly fine to drive. However, if a man is there to drive, it seems that the woman gives her place up to him. Are women, on average, less confident to meet a challenge? The gender gap: Does it perhaps reflect a “confidence gap”?

Claudia:
Debating the question what holds women back could fill several pages. Generally, I’d say that women like to be in the metaphorical driver’s seat. However, I agree, they appear to be frequently less confident than men. I think that women may simply be more realistic. This may be one important factor. Even in contemporary western societies, patriarchal structures combined with cultural norms and expectations are rooted deeply. Childcare, taking care of elderly parents and other unpaid chores are mainly shouldered by women. The fact that women spend twice as much time on housework and other unpaid activities as men has a significant impact.

Benjamin:
Could this imbalance not be an effect, rather than a cause. Different genders, on average, could come with gender-specific competitive advantages that give rise to the imbalance as we see it.

Claudia:
I don’t think so. We have seen, for example, that positive change did come from closing the educational gap over the last decades, at least in many Western societies. In Germany and the US, women earn more college and graduate degrees than men do.

Benjamin:
With equal competence between genders, what could be the one determining factor that slows women down?

Claudia:
A research study by David Dunning and Joyce Ehrlinger at Cornell University in 2003 found an interesting phenomena referred to as the “Confidence Gap”. While exploring the relationship between competence and confidence amongst men and women, men overestimate their abilities and performance, while women underestimate both; even though their actual abilities and performances did not differ in quality between them. Men even display something called “Honest Overconfidence” a genuine belief they are better, as studied by Cameron Anderson at University of California, Berkeley. The lack of confidence in women is the reason why we want to be perfect, experience discomfort around discussing money and display a higher need of being liked, as author and entrepreneur Jane Wesman discusses in her book Dive Right In – The Sharks Won’t Bite: The Entrepreneurial Woman’s Guide to Success. Written in 1995, Wesman recently pointed out she sees the same issues holding female entrepreneurs back since decades. Many publications debating this issue followed, the most popular ones being Sheryl Sandberg’s Lean In as well as Katty Kay and Claire Shipman’s The Confidence Code: The Science and Art of Self-Assurance – What Women Should Know. All with the message: To succeed, competence AND confidence are both crucial.

Benjamin:
In German, we have an expression: “Man soll sein Licht nicht unter den Scheffel stellen.” (literally: One should not put one’s light under the bushel … for nobody to see it) Women, on average, are less braggy and more prone to put their light under the bushel? So, this is the main reason for the imbalance? We’d finally have identified a gender specific reason! As far as I can tell from life experience, some people brag, others don’t. Nothing can be done about that. Do you agree?

Claudia:
No, I do not agree. We have to come together to solve the tasks that we are facing. The challenges to mankind are enormous. The benefit of equality and diversity is obvious. Meanwhile, we as a society, cannot afford to be complacent. Therefore, we cannot continue the status quo. Not because it is simply more fair, but because we all would benefit from equality. Many global studies conducted by for example the Peterson Institute for International Economics, have found that companies employing women in large numbers outperform their competitors on every measure of profitability. And a diverse leadership team across gender and cultures boosts innovation in particular. No surprise that startups founded and cofounded by women perform better over time relative to startups founded by men only, according to a study by BCG and MassChallenge. These companies generated 10% more in cumulative revenue over a five-year period; for every dollar of funding, these female-founded startups generated 78 cents, while male-founded startups generated just 31 cents. McKinsey’s extensive “Women Matter” study sheds light on how closing, or even narrowing, the gender gap in work would have significant global economic impact; as much as $12 trillion could be added to annual global GDP growth in 2025, or 11% to global 2025 GDP. Convinced that we all benefit from equality and diversity?

Benjamin:
These are impressive numbers! I didn’t know that. What on earth can we do?

Claudia:
I want us to move together towards a more inclusive and better future. And while I don’t have the perfect solution ready, I believe every single step counts. At Founder Institute Munich we took the first measure: we welcomed two more female Co-Directors: Dr. Jutta Merschen, a recent graduate and ex-McKinsey consultant and Magdalena Muttenthaler, a previous mentor and serial entrepreneur. The three of us will focus on recruiting more women into the upcoming 2020 accelerator program. We want to show that “Founding Is Female” and women with entrepreneurial skill sets are needed more than ever. And because we know how much role models matter, we will actively increase the number of female CEO mentors and advisors for Munich. Our efforts are supported by the Female Founder Initiative which has been recently launched by Founder Institute’s Silicon Valley headquarter. But nothing is more convincing than real experiences: our previous graduates Andreea, Tina and Beenish are active alumni, inspiring other women by sharing their true entrepreneurial stories. I have hope that once we (women AND men) join efforts, we will be able to close the existing gender gap in the future; the surprisingly high number of 2019 female-born unicorns is a sweet indicator. Still, there’s a long road ahead.

Benjamin:
Thank you very much for the interview. I wish your endeavour good success!