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Tersebox | Millennial's Corner | STAND. START. WIN.

Lack of Diversity in Indian Startup Funding by Investors

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Lack of Diversity in Indian Startup Funding by Investors

In order to understand the entire matter, we first need to understand the term venture capitalist. A venture capitalist is someone who provides capital to those institutions in exchange for equity stakes. However, one more thing that needs to be mentioned here is that these capitalists invest their money only on those companies which show a potential for higher growth in the future. Off late, there is another debate related to venture capitalists which has become a hot topic of discussion. In fact, many studies have also been conducted on the same.

Numerous studies have found out that the venture capitalists are actually biased towards male entrepreneurs specially from IITs from IIMs. This actually comes as a shock for everyone as women entrepreneurs are known to be as effective as their male counterparts when it comes to fundraising, running business, strategizing, etc. Yet they are not able to get a fair deal on the part of the venture capital firms. This definitely does not sound good as the investment opportunities are prevented from being allocated to the right hands. And we do not even need to get into the reason behind this entire thing which can be simply called gender biasness.

It is high time that we need to pay attention towards maintaining a gender balance in the field of entrepreneurship. This can be possible only when more VC – backed firms will be run by women entrepreneurs. The best solution here is pitching and more accurate data analysis. While women entrepreneurs should find better ways for pitching at the time of fundraising, venture capitalists, on the other hand, should keep all the partiality aside and focus more on analyzing the performance portfolio of business firms run by men and women alike.

According to a study published by the Harvard Business Review, “The VC investment process has four stages: deal sourcing, pitching, due diligence, and closing.” As per the same study, there is no biasness in the last two stages. However, there is some amount of partiality during the stages of deal sourcing and pitching because they are highly dependent on personal networks. It is mainly during the pitching stage that we can find gender biasness influencing decisions most of the time. This has been, in fact, proved by numerous academic studies.

There are two more reasons behind this gender biasness that I want to highlight here. The first reason is that most of the time there is a difference between the questions asked to women entrepreneurs and their male counterparts. The worst part is that while men are asked promotional questions while women, on the other hand, are asked preventive questions. Another reason behind the same is that most of the time, women entrepreneurs undervalue themselves during the course of such evaluative stages.

The main question that arises here is that how to stop this gender partiality from happening on the part of the venture capitalists? The best thing to do is here is to allocate the money explicitly based on gender. This can be done by raising funds which are completely female centric. Another thing that can be done here is one can totally ditch the entire pitching process which is one of the main reasons behind gender biasness. So, we have got two options here which are eliminating pitching and cross – gender competition. Now only time will tell whether the venture capitalists and the entrepreneurs will adopt these measures or not.


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