Anatomy of Maltreatment

In recent years, activists and the media have prepared women to feel discriminated against by investors. Though well-intentioned, this causes female founders to go into investor meetings expecting to face discrimination. That often causes them to misinterpret investors' actions, and the resulting disconnect can harm their chances of raising money.

There are multiple reasons investors can seem arrogant or dismissive, and sexism is only one of them. I'm going to explain them all here, in the hope that if founders understand where investors are coming from, they'll be able to respond appropriately.

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Most founders will agree that fundraising is really hard. Even the most successful ones were often turned down many times when they first tried to raise money. Many were also met with skepticism, condescension, or some form of maltreatment from investors during the process.

There’s a certain high-handed attitude that many investors have that’s disconcerting to anyone trying to raise money. It’s important that female founders understand what can drive it, so they don’t blindly interpret all negative interactions with investors as discrimination.

Below are the 5 possible components of investors’ high-handedness:

  1. The investor is in a position of power over a founder.
  2. The investor is skeptical, because lots of founders are frauds or their startups are doomed.
  3. The investor is an asshole.
  4. The investor discriminates against women founders.
  5. The investor discriminates based on other things.

Power

Startups need money and investors are the ones who can give it to them, which creates an inherent power imbalance in the fundraising process. This is the most common problem with the investor/founder dynamic and is the likeliest explanation for negative interactions during meetings.

Many investors (especially younger ones) enjoy their sense of power, and it causes them to do lots of annoying things. Like being condescending, or asking questions they think will make them seem smart (vs. being driven by a genuine curiosity), or making overreaching demands in their investment documents.

First, don’t take things personally if investors seem high-handed. If you spend time being insulted or angry, you are losing focus on the main goal of fundraising.

Second, you’ll probably need to tolerate it unless you can shift the power imbalance. There are two ways to do that: 1) you don’t actually need their money because you are profitable or 2) you have lots of interest from other investors. In both cases, you have the ability to walk away at any time.

Fortunately, in most cases, this type of behavior is not too dramatic or malicious and will calm down once they’ve invested.

Skepticism

You may not realize it, but investors spend most of their time talking to startups that are doomed and whose founders are trying to claim that they aren’t. This trains investors to be extremely skeptical. So they’ll ask tough questions, poke holes, and dismiss ideas-- all in an effort to sift through the bullshit and figure out if there’s something promising happening.

Of course it’s okay for investors to ask tough questions. That’s the only way to get to the truth. And the best investors ask lots of incisive questions before deciding to invest. But you should recognize the difference between general skepticism and discrimination.

Incisive questions are not discrimination. In fact, they are actually a good sign— the investor cares enough to dig in. Interrupting you, though rude, is usually a good sign too. It means an investor is very engaged and wants to understand your point. (Trust me, I’d much prefer an investor interrupting me than checking their phone during a meeting.)

The best way to overcome investors’ skepticism is by actually being a good investment. Have good growth numbers, for example. Be able to clearly explain what your startup does and why it could grow very big.

Again, don’t take things personally. If someone disses your idea, explain why you think they are wrong. Investors can be convinced to change their minds. Especially the smartest ones.

Investors can also have their minds changed if you simply prove them wrong over time. Growing your company and getting more users is what you need to be doing anyway. So focus on proving them wrong. That’s what I did when investors were skeptical about my company.

Assholes

Unfortunately, some investors are just assholes. It can be tricky, though, to distinguish if an investor is a bad person or if they are just under the influence of the power imbalance.

One reliable way to judge investors is to talk directly with someone they’ve actually funded. Contact their portfolio companies and ask what their experiences have been like. What happens when the going gets tough? How they treat founders in difficult times usually exposes true assholes.

Sometimes you just need to trust your gut. If an investor really seems like an asshole to you, then move on. You don’t want them in your cap table for life.

Sexism

I’m certain that some investors don’t want to fund female CEOs and that some get skittish when it comes to pregnant founders. But unfortunately, it’s almost impossible to know for sure if an investor is discriminating. No one would ever admit to it. Many might not even be aware of it themselves. It’s easy to give a plausible-sounding reason for not wanting to invest. And how is a founder to know if it’s the truth or an excuse? They really can’t.

Obviously in cases where an investor says overtly sexist things, then move on immediately. But since few investors will ever be overt, you must operate under the assumption that you won’t be able to know for sure if you’re being discriminated against.

Other Discrimination

There are plenty of other ways investors discriminate besides sexism. Race, sexuality, or physical appearance, for example. But just like sexism, investors won’t admit to it (or maybe even realize they’re doing it), so it’s hard to know for sure.  

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If you know that all founders get maltreated during fundraising and that it’s nearly impossible to tell to what extent it's driven by sexism, then the best tactic is to stop trying to tell.

Instead, answer their questions, try to understand and address their concerns and don’t take it personally! Replicate your fundraising efforts by trying to meet with more and more investors. Closing investors usually takes a thick skin and a lot of meetings.

Sexism might explain why an investor passed, but there are so many other more probable (and mundane) reasons. Weak growth numbers, for example. Or your product will be too hard to build.  Or there won’t be enough demand for it. Or there’s already a good enough product out there. Or simply that the investor is too stupid to understand what you're doing.

Never forget that startup investors are looking for explosive growth. Though we can fault investors for maltreating founders, we can’t expect them to invest in something they don’t believe will become a huge hit. Be careful not to use discrimination as an easy excuse for not convincing investors you’ll be a huge hit.

Female founders are often made to feel disadvantaged. But it weakens you to tell yourself you’ll be discriminated against.  You go into fundraising meetings with a general lack of confidence and a chip on your shoulder. Which is the exact opposite of what you want when you’re trying to raise money for your startup.

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