Female founders - opportunities and risks

Today, the verdict was announced in the high-profile lawsuit against the Silicon Valley-startup Theranos' founder. In 2014, she was named the world's youngest female billionaire to build her fortune herself. In 2015, she was pictured on TIME's list of the 100 most influential people in the business world. She was named "Woman of the Year" by Glamor and was honored by Forbes with the "Under 30 Doers" award. She was presented as a role model for all aspiring female tech founders who showed that it is possible also for women to found successful tech companies, if they only have it in them to succeed. A few years later, her story is instead a moral story about women, startups and the illusion of genius.

The advice to budding entrepreneurs is often to live by the motto "fake it til you make it". Marketing may promise a little (or a lot) more than you can actually live up to. Maybe you claim that you are developing a product with enormous potential to investigate demand even though the product is barely at the idea stage, or you are creating statements on your own from alleged customers on the website. Maybe some are tempted to become customers themselves when they see that others already are.

For some it goes well and the image of success becomes true. Some we can believe for a long time and once they fail, we celebrate their vision and remind them that the important thing is to learn from the mistakes and then we give them a second chance. Others we do not believe in whatever they say and whatever they can prove. Many people talk about investing in people, not the idea. The genious founder who we believe can turn anything he (or perhaps even she?) touches into gold.

Female founders should consider the Theranos ruling from the United States. The rules of the game are not equal. If you are lucky enough to succeed in convincing others that you have something of value, you must not promise more than what you can already keep. If you really believe in your idea, you need to clarify the risks so that no one is fooled by what you say. You do not have the privilege of telling that you are going to improve the world and draw the broad lines for how to win the world market within 10 years. None of us should really have that privilege - we should all be treated with a big pinch of salt and required total realism and proof even in the early stages. But the startup world is full of people who promise more and draw up fantastic visions. And we encourage them to do so by praising, collaborating, buying and investing in those who are best at succeeding with the art of magic to make us see their vision and believe in it and its messenger.

Research has shown that entrepreneurs who get questions about opportunities get six times as much in investment capital as those who are asked about risks. As a rule, more opportunity-based questions are posed to male entrepreneurs, while female entrepreneurs seem to be asked more questions about how the inherent risks should be managed. Similar effects can be seen for those entrepreneurs who are perceived either as confident or less confident in themselves. As a consequence, the startup world often encourages women entrepreneurs to try to turn risk-based questions into a discussion of opportunities and also train them in how they can appear more confident, all in order to increase their likelihood to obtain funding. However, very little is said about why it is female entrepreneurs who are given more risk-based questions, while men get a different type of questions. Do you solve the problem by teaching women how to handle these situations or do you perhaps make it worse instead? Therano's founder talked a lot about opportunities and vision and little about risks. From that perspective, she did what many urge female founders to do to try to close the investment gap. But instead of praising the female exceptions as role models, we should perhaps instead ask ourselves whether it is really the female entrepreneurs that we should try to change and that it is probably rather we who listen and our expectations that need to change.

If women highlight the opportunities that they are so often encouraged to do, they risk being considered criminal if the opportunities do not materialize in the rearview mirror. The verdict will literally be much harsher. The reason for the risk-based questions that women get are that the person who asks them, as a starting point, does not believe what the female entrepreneurs say and mostly tries to understand where the weak point is and how it can be handled. You cannot see the potential and insteade you first try to understand where all the downsides are. The listener sees the risks, but not the opportunities. However, when the male founder takes the stage with his large team and with radiant eyes tells that they will conquer the world, investors get in line to join. Perhaps investors have reason to assume that the male founder is much more likely to succeed - customers and partners will probably also believe more in the man than in the woman, all else equal, and it is probably a rational conclusion to draw that the path to success will be much harder for the woman in today's society.

Many times, however, the female entrepreneurs never go so far as to getting the opportunity to convince anyone at all, regardless of whether what they claim is true or can be proven or otherwise. Investors do not do charity work - they want to make money and they do it most easily by investing in those they think are most likely to have their doors opened for them. The founder of Theranos was an exception. Unlike many other female entrepreneurs, she managed to convince many of her potential. She also got onboard well-known older influential men who sponsored and gave her more credibility which in turn made more male investors believe and invest in her. But when the house of cards fell, they were all gone and she was left alone. One wonders if the founder of Theranos had remained a success if those who previously believed in her continued to believe in her. Had they just as quickly abandoned a male genius who could still convince them to believe in the vision?

Very few startups succeed in living up to the opportunities that they have envisioned. It is common to change business concept several times in the beginning of a startup's life and change the approach as you as a startup founder try to find your market and product. But we usually demand more proof from female founders even in the early stages. Evidence that often does not exist because it is about ideas that are to be developed in the future, companies that are to be built, visions that are to be realized.

As a lawyer, I have reflected a lot on the startup world that I stepped into a little more than four years ago. There are laws and rules about fraud that many do not seem to be aware of in Sweden either, not even some of those whose profession it is to coach and give startups advice. But I have also reflected a lot on how many seem to be blind to issues of gender equality and the challenges that exist in environments where there is a lack of gender equality. The startup world and the structures that have been built around it, not least tax-financed ones, often lack awareness of these issues, despite there being many women employed in these structures to help startups. The structures seem to rely on that there are no differences between how men and women are viewed and to the extent that men and women are treated differently, the solution is instead to make women become more like men in order to eliminate the difference. To coach women to act more like men and to found companies in areas where men typically start companies.

However, you can not blame everything on the startup world. When it comes to innovation, there is also a self-image in the state apparatus and society as a whole that Sweden is best in the world at innovation, but we do not reflect on the absurdity of such a self-image in light of women's innovation receiving only 1% of venture capital. Nor do we reflect on why we still seem to think that it is acceptable not to put more pressure for change - probably because somewhere we still believe that the problem is due to the women themselves instead of seeing how the conditions for innovation are very different. No country can claim to be the world's best at innovation or accept such an award until the problem of women's start-ups being given the same conditions has been solved.

A startup that seeks capital involves a great deal of risk for those who invest. You have to be aware of that. There are no guarantees. The problem is, however, not that women get too many risk-based questions when pitching. The problem is that we who judge the entrepreneurs find it easier to believe more that the male entrepreneurs will succeed in what they claim than that the female entrepreneurs will do it, all else equal. The solution then is not to try to get the women to imitate the men. Women cannot change the fact that they are women. We need to change what makes the rest of us think that women need to change. But there is an additional complexity in this. In our society, it is still rational that we believe more in men than in women because we probably all understand deep down that women in general may have a harder time getting others to believe in them as well, in the same way that we ourselves have hard to believe and bet on them. The only way to deal with this problem in a sustainable way is for us all to become more aware of our own preconceived notions and to consciously try to help change the playing field. We can do this by starting to question the male entrepreneurs more and strive to see more risks in their business proposals while we strive to see how we can create more opportunities for the female entrepreneurs who come our way. We can start to ensure that our purchases are equal and if we have difficulty building an equal supplier base we can actively try to find more of those who are underrepresented and give them the chance to get ahead and help them make others want to hire them as well. To never assume that a woman's company has nothing of value because she can not show a large customer base but instead say that it would be an honor to be one of her first paying customers. If more people are willing to buy goods and services from companies run by women entrepreneurs, even in markets that are not dominated by women buyers, it will be more interesting for investors to invest in them as well. It becomes less rational to only ask opportunity-based questions to male entrepreneurs and risk-based questions to the female ones. It becomes less rational to let 90 times as much of the venture capital go to companies with only male founders as to companies with only female founders.

I hope that the verdict against Therano's founder can make us reflect a little more, but I also see the risk in that it for some confirms a picture that there are no female geniuses in the same way as there are male geniuses. That it makes us ask even more risk-based questions to female founders while we continue to assume that the male entrepreneurs can work wonders. That we feel even more that it is something fishy with a female founder saying that she has something that can revolutionize the market at the same time as we are in line to invest in the companies that everyone else also believes in. When female founders do something genious, the reaction does not become "wow", but instead we choose to distrust to an even greater extent than today and assume that she is lying.

The verdict against Therano's founder is moral, but perhaps not in the way we first think. It points to a deeper problem in the startup world and how we have built the structures there - not for the female founders, but for the male founders. Therano's founder was an exception among women but she was not an exception among startup founders in general. The problem for her was perhaps above all that she had not understood that she, as a woman, was subject to much higher demands to be able to prove her vision and would receive much less patience from her investors who perhaps mainly invested in her because they thought they saw in her a unique and unusual exception - a woman who was also a genius.

Misleading investors is just as bad, whether you are a man or a woman, but the startup world is built to house magic mirrors and aggressive risk-taking for founders in general. Maybe it's time to rebuild the structures and instead create a culture where the actions that characterize many female entrepreneurs in general are instead rewarded and male entrepreneurs get to learn to act more like the women? I.e. imitate the women who have not yet embraced all the supposedly good advice given to them by coaches on how to imitate male founders more. Then we can measure in the statistics how well we succeed if we can see that those who receive risk-based questions instead receive six times as much capital as those who only receive opportunity-based questions.

It is easy to be convinced by someone who builds up images of opportunities, but a good investor is more focused on risks and how you yourself can contribute to increasing the opportunities. You should be able to make an independent assessment of the opportunities without relying on what someone else says. One might think that those investors who get on the train without questioning should have themselves to blame. But according to the Swedish Criminal Code, it is a crime if a founder disseminates misleading (i.e. not just incorrect) information that is likely to influence the assessment of the company in financial terms. From that perspective, it's quite worrying when the startup world is flooded with pitch competitions where startup founders are encouraged to compete on how good they can paint themselves as the next Storytel, Facebook or Amazon to get investments.

As potential partners and customers, we can contribute with changing the playing field in our repective roles - not by tuning in to the tribute choir on social media when a few female entrepreneurs are highlighted as role models, but by actively ensuring that we buy and collaborate with women entrepreneurs to increase their opportunities to show their potential on paper. Then we can jointly ensure that it becomes rational to invest in women entrepreneurs. We can put pressure by asking for purchasing statistics from those with whom we collaborate, instead of just cheerfully urging more women to dare to start companies. We can make more women dare to start companies if we help increase their chances of being successful when they do it.

Therano's founder is a moral example of what happens when we tell women to do things like the men to be successful when we should instead work to make men learn to be more like women(!). It would have been a healthier culture where potential and innovation could have been better utilized. However, as long as we maintain the structures built for men in the startup world, we show the male founders that there is no reason for them to change. The risk is minor that someone will accuse them of fraud even if the visions they painted for the investors do not materialize. After the verdict against Therano's founder, however, female founders should become more aware of the risks for themselves when they let themselves get convinced to act more like men in a society that treats men and women differently, all else being equal.