Feminism in Finance

This article is a response to a discussion on Founders Dating.  A female entrepreneur who was seeking funding for her business had discovered that she was pregnant. She wanted to know if the Founders Dating community thought that it was necessary for her to disclose that fact to prospective investors.

Almost universally, the men who responded thought that she must. They would not trust her, they said, if she had asked them to invest in her company without disclosing the pregnancy to them up front. I thought this response bordered on absurdity and I said so.

If the female entrepreneur had asked my advice, I might have asked if she thought the pregnancy or childbirth would materially impact the business. If she said no, I would have advised her not to disclose it. That is what I posted and virtually all the men and a few of the women took the contrary view.

If I was preparing the prospectus for an IPO of the same company, I would be obligated to do some due diligence about each of the key executives in the company to make certain that their disclosures were accurate. I would never think to ask anyone if they or their spouse was expecting a child. It is not an event that would normally be disclosed. The SEC would certainly not punish anyone for failing to disclose it.

If the issue is that the pregnancy might take this executive away from the business for a period of time, distract her or impede her ability to do her job then I would be obligated to ask every key executive at the company: Do you have a special needs child or elderly parents?  Are you healthy? How often do you drink alcohol? Do you have a prescription for oxycodone?

You can see where this goes. Any of these would potentially have a greater impact on the executive’s time and performance than an average pregnancy and birth.

No one would suggest that a male executive disclose his wife’s pregnancy even if the company had a policy that would give him extended parental leave after the birth. That is the salient point. This is a prejudice against women. It really has nothing to do with a clear business decision.

If anything, it is easier to plan for the “disruption” that a birth might have with the timeline the company is forecasting. Every schedule needs some slack. Once a pregnancy is known, the business can plan for it.

Much of the discussion seemed focused on the fact that the investors, mostly angels rather than professional VC’s, were concerned that the entrepreneur had divided her attention away from the business. They were concerned that she would not be giving 100% of her attention to the business that they were funding.

This kind of thinking is archaic, inappropriate and demonstrates how poorly these angel investors approach the task of evaluating a business that they are considering funding. To me they were signaling their own ineptitude and a foolish approach to investing their own money.

What these angel investors are saying is that they are not confident the business has a team in place sufficient to deal with the absence of a key player. That might be true if this were a concert tour and the primary artist became pregnant. For almost every other business it should never be an issue. With a CEO or senior executive, if childbirth truly impacts their productivity then that loss in productivity can be picked up by another member of the executive team.

Underlying the desire of these angel investors to have disclosure of this pregnancy was a knee-jerk opinion that women do not make good judgments. Underlying was the attitude: why did she get pregnant when she was trying to start a business? Respectfully, it is none of your business, even if it is your money.

Whether you attend business school at Harvard or at a state university, students are generally taught that the CEO and management team should have 3 types of vision; 1) vision on the product (costs and quality); 2) vision on the market (customers and competition) and 3) vision on the bottom line (overhead and cash flow).  It is a good, simple approach that investors can evaluate. It is a standard that does not care if the entrepreneur is male or female.

The implication is that a woman could not have this requisite vision if she also had vision on her infant. That makes no sense. I could not find a reputable study that supported this, nor would I expect to find one. A lot of women have children and return to work.

I graduated for an all male college in 1971. When I started law school that fall, my law school class of 120 students included exactly 12 women, because there was a 10% quota for women.  When I started working on Wall Street after graduation women were mostly secretaries. A handful of women were in middle management, but none were in upper management. The firm had a few thousand stockbrokers; probably less than 20 were women because people did not think women knew a lot about investments and managing money. Throughout the business world the glass ceiling was very real.

It was not unusual to hear what would now be considered inappropriate remarks about women at any time. It was not inappropriate to ask a woman to bring you a cup of coffee, no matter what her job title or expect her to straighten up the conference room after a meeting. A lot of people, including a lot of women, thought that women joined the workforce to find husbands.

Women were treated as second class citizens in the business world. In many respects they still are.  The Founders Dating discussion highlighted how this problem still exists.

Today approximately one-half of college graduates are women and it seems reasonable that one-half of the venture capital would be directed to companies that women own or control. But that is not the case. It is not going to happen unless and until these archaic attitudes about women’s ability and judgment are dispelled.

The problem needs to be approached from both directions.

Angel investors need to get a little perspective. Investors in large companies do not ask about the executives’ personal lives when they make an investment. A small company is no different.  If you cannot evaluate a business as a business and insist upon knowing the details of the managements’ personal lives, I suggest that you keep your money in your pocket.

Steve Jobs had returned from a commune shortly before he started Apple. Should his personal life have been considered by investors or just his product? And to be sure, Jobs is not an anomaly. Back in the 1970’s men could not get jobs, let alone funding, if their hair was over their collars.

As importantly, women need to call out this foolishness whenever it occurs. At least one woman in the Founders Dating discussion supported the idea that a pregnancy should be disclosed. I would have expected many women to tell the men to get real. Few did.

There are more and more successful women stepping up and providing capital to businesses being started by other women. That is laudable but does not touch on the problem.

I found the fact that not a single woman on Founders Dating raised significant objections to the entire discussion to be an indication of why this type of prejudice continues. Ignoring this problem will not make it go away.